Question

You have just won the lottery and will receive $640,000 in one year. You will receive payments for 23 years, which will increase 4 percent per year. The appropriate discount rate is 10 percent. Required: What is the present value of your winnings?

Answer 1

Solution :-

The Present Value of Growing Annuity Calculated as

Where P = first payment = $640,000

r = Discount rate = 10%

g = growth rate = 4%

n = time = 23 years

PV = 7,730,614 ( Approx )

Therefore the Present Value of the winnings = $7,730,614

If there is any doubt please ask in comments

Thank you please rate