You just won the $85 million Ultimate Lotto jackpot. Your winnings will be paid as $3,400,000 per year for the next 25 years. If the appropriate interest rate is 6.7 percent, what is the value of your windfall?

PV = $40,716,437.34

Explanation:

Giving the following information:

Cash flow = $3,400,000 per year

Number of years = 25

Interest rate = 6.7%

To calculate the present value, first, we will calculate the future value:

FV = {A*[ (1+i) ^n-1]}/i

A = annual cash flow

FV = {3,400,000*[ (1.067^25) - 1]} / 0.067

FV = 206,006,183.4

Now, the present value:

PV = FV / (1+i) ^n

PV = 206,006,183.4 / (1.067^25)

PV = $40,716,437.34