You have just received notification that you have won the $1.4 million first prize in the lottery. However, the prize will be awarded on your 100th birthday, 70 years from now. (Wow, you're older than I generally think!) The appropriate discount rate is 8%. What is the present value of your winnings? a. $4,288.16

b. $6,404.20

c. $15,309.91

d. $23,333.33

e. $25,000.00

Question

Business

Giana Hodges

5 August, 20:30

You have just received notification that you have won the $1.4 million first prize in the lottery. However, the prize will be awarded on your 100th birthday, 70 years from now. (Wow, you're older than I generally think!) The appropriate discount rate is 8%. What is the present value of your winnings? a. $4,288.16

b. $6,404.20

c. $15,309.91

d. $23,333.33

e. $25,000.00

+5

Answers (1)

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Eaton · Answer 1

b. $6,404.20

Explanation:

Value of prize = $1.4 million = $1,400,000

Amount to be received in years = 70 years

Interest Rate = 8%

Future value = Present value x (1 + interest rate) ^-number of years

FV = PV x (1 + r) ^n

1,400,000 = PV (1 + 0.08) ^70

1,400,000 = PV (1.08) ^70

1,400,000 / (1.08) ^70 = PV

PV = $6404.20

So The present value of the winning is $6,404.20.