Bill wins the local lottery and is to receive 28000 a year o

Bill wins the local lottery and is to receive 28,000 a year on the LAST day of each of the next 6 years. Assuming a discount rate of 7% what is the present value of Bill\'s lottery prize?

Solution

Time period (n) = 6 years

Discount rate (r) = 7%

Amount (P) = $ 28000

Present value of Bill\'s lottery prize = P* PVIFA (r, n)

= $ 28000 * PVIFA (7%, 6 )

= $ 28000 * 4.76654

= $ 133463.12

PVIFA = (1 - (1 + r)^-n) / r

= 1 - (1 + 0.07)^-6) / 0.07

= 4.76654