Question

Present value of an annuity On January 1, you win $54,000,000 in the state lottery. The $54,000,000 prize will be paid in equal installments of $6,750,000 over eight years. The payments will be made on December 31 of each year, beginning on December 31 of this year. The current interest rate is 4.5%. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. Open spreadsheet Determine the present value of your winnings. Round your answer to the nearest dollar.

Answer 1

Answer:

The present value of the winnings is $44,522,230.95  

Explanation:

The present value of the winnings is determined by multiplying  by each cash flow in relevant year with the discounted factor for that specific year.

formula for discount factor=1/(1+r)^n

r is the current interest rate of 4.5% used a discounting rate

n is the year to which the cash flow relates.

Based on the explanation above,the present value of the winnings cash inflows is $44,522,230.95  as found in the attached.