Mark Young has won the state lottery, paying $50,000 a year for 20 years. He is to receive his first payment a year from now. The state advertises this as the Million Dollar Lottery because $1,000,000 = $50,000 × 20. If the discount rate is 8 percent, what is the present value of the lottery? Equation 4.15 yields:

Rather than being overjoyed at winning, Mark sues the state for misrepresentation and fraud. His legal brief states that he was promised $1 million but received only $490,907.

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Present value of Million Dollar Lottery = $50,000 X Periodic payment = - = $490,907 1 1.08 20 .08 Annuity factor $50,000 x 9.8181