You just won a contest The prize is a lump sum payment of 75

You just won a contest. The prize is a lump sum payment of $75,037, however, you will not receive this payment for 24 years. Compute the present value of your prize assuming a discount rate of 15 percent per annum. (Round your answer to 2 decimal places; record your answer without commas and without a dollar sign) Your Answer

Solution

The prize of $75,037 will be received after 24 years so, this is Future Value.

Future Value (FV) = $75,037

Time or Number of periods (n) = 24

Rate per period (r) = 15%

Using basic TVM equation,

FV = PV (1 + r)ⁿ

75037 = PV (1 + 0.15)²⁴

75037 = PV (1.15)²⁴

75037 = PV (28.6252)

PV = 75037 / 28.6252

PV = 2621.36