Answer/Step-by-step explanation:
To calculate the present value of your lottery winnings with increasing payments over 35 years and a discount rate of 7.4 percent, follow these steps:
1. Calculate the increasing payments using the formula for a growing annuity:
Payment Year 1 = $1,000,000
Growth Rate = 3.4%
Number of Years = 35
2. Determine the present value of the growing annuity by discounting each payment back to present value using the appropriate discount rate of 7.4%:
Present Value = Payment Year 1 / (1 + Discount Rate)^1 + Payment Year 2 / (1 + Discount Rate)^2 + ... + Payment Year 35 / (1 + Discount Rate)^35
3. Add up the present values of all the payments to find the total present value of your winnings.
Calculating the present value of an annuity with increasing payments can be complex due to the changing amounts and discount rate. It's recommended to use financial software or online calculators designed for this purpose to ensure accurate results.
