Present Value of an Annuity

On January 1, you win $2,800,000 in the state lottery. The $2,800,000 prize will be paid in equal installments of $350,000 over 8 years. The payments will be made on December 31 of each year, beginning on December 31. If the current interest rate is 6%, determine the present value of your winnings. Use the present value tables in Exhibit 7. Round to the nearest whole dollar.

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Review the time value of money concept. Recall that the time value of money concept recognizes that cash received today is worth more than the same amount of cash to be received in the future.