On January 1, you win $46,000,000 in the state lottery. The $46,000,000 prize will be paid in equal installments of $5,750,000 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 5%.

On January 1, you win $46,000,000 in the state lottery. The $46,000,000 prize will be paid in equal installments of $5,750,000 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 5%.

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter27: Time Value Of Money (compound)

Section: Chapter Questions

Problem 7E

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

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Determine the present value of your winnings. Round your answer to the nearest dollar.

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