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29 June, 03:48

You have just received notification that you have won the $2 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to collect), 80 years from now. What is the present value of your windfall if the appropriate discount rate is 8.4 percent?

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  1. 29 June, 04:15
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    The correct answer is $3152.73

    Explanation:

    According to the scenario, the given data are as follows:

    Future value (FV) = $2,000,000

    Time period (t) = 80 years

    Discount rate (r) = 8.4%

    So, We can calculate the present value by using following formula:

    Present value = FV : (1 + r) ^t

    PV = $2,000,000 : (1 + 0.084) ^80

    PV = $2,000,000 : 634.369911804

    PV = $3152.73
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