Question

Rita Gonzales won the $47 million lottery. She is to receive $1.2 million a year for the next 30 years plus an additional lump sum payment of $11 million after 30 years. The discount rate is 6 percent. What is the current value of her winnings?

Answer 1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=1,200,000/1.06+1,200,000/1.06^2+1,200,000/1.06^3+...............+1,200,000/1.06^30+11,000,000/1.06^30

=1,200,000[1/1.06+1/1.06^2+1/1.06^3+....................+1/1.06^30]+11,000,000/1.06^30

=$(1,200,000*13.76483115)+(11,000,000*0.17411013)

which is equal to

=$18,433,008.82(Approx).