You have just won a lottery! You will receive $50,000 a year beginning one year from now for 20 years. If your required rate of return is 10%, what is the present value of your winning lottery ticket

The prize is worth $425,678.19.

Explanation:

Giving the following information:

Cash flow = $50,000

The number of years = 20 years.

Rate of return = 10%

First, we need to calculate the final value using the following formula:

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

A = annual cash flow

FV = {50,000*[ (1.1^20) - 1]}/0.1

FV = $2,863,749.98

Now, the present value:

PV = FV / (1+i) ^n

PV = 2,863,749.98 / (1.1^20)

PV = $425,678.19