Assume the Mega Millions jackpot is $65 million payable in 25 equal annual installments of $2.6 million with the first payment payable at the end of the first year.
a. Explain why the Present Discounted Value (PDV) of this jackpot is less than $65 million.
b. Calculate the PDV if the interest rate were 6 percent (i=0.06).
c. What is the PDV if the jackpot paid $2.6 million per year for ever?