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When a lottery prize is $10 million but will pay out a series of $250,000 payments...

When a lottery prize is $10 million but will pay out a series of $250,000 payments over 40 years, what is its actual value? Show how you came to your conclusions.

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Answer #1

Lottery Prize = $10,000,000

Lottery Payments = $250,000 over a period of 40 years.

Due to Time value of Money the Present Value of lottery is less than $10,000,000. For calculating the actual present value of lottery we need discount rate, and as discount rate is not mentioned in question I am assuming rate of 10% to show the reduction in present value of lottery.

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