You have just won the lottery and will receive $1,000,000 in one year. You will

Question

You have just won the lottery and will receive $1,000,000 in one year. You will receive payments for 35 years and the payments will increase by 4 percent per year.

If the appropriate discount rate is 8 percent, what is the present value of your winnings? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Show how to calculate on financial calculator as well.

You have just won the lottery and will receive $1,000,000 in one year. You will receive payments for 35 years and the payments will increase by 4 percent per year.

Explanation / Answer

Using excel:

=PV(1.08/1.04-1,35,1000000/1.04)

=18327701.89

Using formula:
=1000000/1.08+1000000*1.04/1.08^2.....
=1000000/1.08*(1-(1.04/1.08)^35)/(1-1.04/1.08)
=18327701.89

Using financial calculator:
I/Y=1.08/1.04-1
N=35
PMT=1000000/1.04
FV=0
CPT PV=18327701.89

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