https://newconnect.mheducation.com/flow/connect.html Assignment 2 Saved 8 You ha

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https://newconnect.mheducation.com/flow/connect.html Assignment 2 Saved 8 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), 66 years from now 10 points What is the present value of your windfall If the appropriate discount rate is 10 percent? (Do not round intermedlate calculations and round your answer to 2 decimal places 6g, 3216 value Book Print References Prev 8 of 10E > 20 8

Explanation / Answer

Answer>

In order to determine the present value of the winnings, we will find out the present value of the total amount.

Here Cash inflow = face value (FV) = $3,000,000

Amount to be paid after (T) = 66 years

Discount rate (R) = 10%

Present Value (PV) = FV/((1+R)^T)

Which gives us,

PV = 3000000/((1+10%)^66)

PV = 3000000/(1.1^66)

PV = 5561.655

Hence the present value of the windfall is $5,561.655 (that is, a lottery of $3,000,000 payable after 66 years is equivalent to a prize of $5,561.55, payable today)

Hope this answers your question

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