Question

On January 1, you win $3,760,000 in the state lottery. The $3,760,000 prize will be paid in equal installments of $470,000 over 8 years. The payments will be made on December 31 of each year, beginning on December 31. If the current interest rate is 5%, determine the present value of your winnings. Use the present value tables in Exhibit 7. Round to the nearest whole dollar.

Answer 1

Annual installments = $470,000

Timer period (n) = 8 years

Interest rate (r) = 5%

Present value of winnings = Annual installments x Present value annuity factor (i%, n)

= 470,000 x Present value annuity factor (5%, 8)

= 470,000 x 6.46321

= $3,037,709

Note: Exact answer may slightly differ due to rounding off and factor value considered

Kindly comment if you need further assistance.

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