You have just won the lottery and will receive $560,000 in one year. You will receive payments for 26 years, and the payments will increase 4 percent per year. If the appropriate discount rate is 11 percent, what is the present value of your winnings

PV = $3,634,716.01

Explanation:

Giving the following information:

Cash flow = $560,000

Number of years = 26

Interest rate = 11%

growth rate = 4%

First, we will determine the final value. We will include the growth rate to the interest rate. We need to use the following formula.

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

A = annual cash

FV = {560,000*[ (1.15^26) - 1]} / 0.15

FV = $137,598,703.2

Now, the present value:

PV = FV / (1+i) { n

PV = 137,598,703.2 / (1.15^26)

PV = $3,634,716.01