You've just won the lottery, congratulations. You and your heirs will receive $35,000 per year forever, with the first payment received at the end of the first year. If the appropriate discount rate is 8%, what is the present value of your prize?

Present Value = $437,500

Explanation:

Giving the following information:

You and your heirs will receive $35,000 per year forever, with the first payment received at the end of the first year. The appropriate discount rate is 8%.

We need to find the present value of a perpetual annuity. To do that, we will use the following formula:

PV = Cf/i

Cf = cash flow = 35,000

i = 0.08

PV = 35,000/0.08 = $437,500