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you have just received notification that you have won the $1.25 million first prize in the centennial lottery. the prize will be awarded on your 100th birthday, 79 years from now. the appropriate discount rate is 6.4 percent, compounded annually. what is the present value of your winnings?

Respuesta :

The winnings' current value should be $9300.82.

The fact that

Cash inflow times the present value of the discounting component (rate, time) equals the present value of inflows.

The present value calculation formula is as follows:

P = FV (1 + r)^-n

$1.25 million is the FV, or future value.

P = Current Value

R is equal to 6.4 percent interest.

N is equal to 79 years.

1.25 (1.064)^-79 = $9,300.82

Hence the vale of winnings will be $9,300.82

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