You have just received notification that you have won the $3 million first prize
ID: 2815144 • Letter: Y
Question
You have just received notification that you have won the $3 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 78 years from now.
What is the present value of your windfall if the appropriate discount rate is 10 percent? ( round 2 decimal places).
You have just received notification that you have won the $3 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 78 years from now.
Explanation / Answer
We can use the present value of sum formula to calculate the present value of windfall Present value of sum = FV / (1+r)^n FV = Future value i.e.amount to be received 78 year from now = $3 million r = discount rate = 10% n = no.of years = 78 Present value of sum = $3 million / (1+0.10)^78 Present value of sum = 0.001772 million The present value of your windfall if the appropriate discount rate is 10 percent = $1772.11
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