Question

You just won the $66 million lottery. You will receive $2.3 million a year for the next 25 years plus an additional payment of $8.5 million at the end of 25 years. The interest rate is 11 percent. How much is your lottery prize worth today?

Answer 1

The lottery prize that would be worth today would be calculated using present value concept.
Present value is calculated as value of investment today to be received in the future which are discounted using a discount rate.
Calculation of present value of lottery price is shown below
Year	Cash flow (In millions)	Discount rate @ 11% (1/(1+1.11^n)	Present value
1	$2.30	0.90090	$2.07
2	$2.30	0.81162	$1.87
3	$2.30	0.73119	$1.68
4	$2.30	0.65873	$1.52
5	$2.30	0.59345	$1.36
6	$2.30	0.53464	$1.23
7	$2.30	0.48166	$1.11
8	$2.30	0.43393	$1.00
9	$2.30	0.39092	$0.90
10	$2.30	0.35218	$0.81
11	$2.30	0.31728	$0.73
12	$2.30	0.28584	$0.66
13	$2.30	0.25751	$0.59
14	$2.30	0.23199	$0.53
15	$2.30	0.20900	$0.48
16	$2.30	0.18829	$0.43
17	$2.30	0.16963	$0.39
18	$2.30	0.15282	$0.35
19	$2.30	0.13768	$0.32
20	$2.30	0.12403	$0.29
21	$2.30	0.11174	$0.26
22	$2.30	0.10067	$0.23
23	$2.30	0.09069	$0.21
24	$2.30	0.08170	$0.19
25	$10.80	0.07361	$0.79
			$20.00
Thus, the lottery is worth $20 million today.