You have just won the lottery and will receive $530,000 in one year. You will receive payments for 25 years, and the payments will increase 4 percent per year. If the appropriate discount rate is 10 percent, what is the present value of your winnings

Present value = $3,642,651.54

Explanation:

Giving the following information:

You have just won the lottery and will receive $530,000 in one year. You will receive payments for 25 years, and the payments will increase by 4 percent per year. The appropriate discount rate is 10 percent.

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

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

A = annual payment = 530,000

i = 0.04 + 0.10 = 0.14

n = 25

FV = {530,000*[ (1.14^25) - 1]}/0.14

FV = 96,391,538.43

Now, we can calculate the present value:

PV = FV / (1+i) ^n

PV = 96,391,538.43 / (1.14^25)

PV = $3,642,651.54