A $1,000,000 lottery prize pays $50,000 per year for the next 20 years. If the current rate of return is 2.75%, what is the present value of this prize? (Assume the lottery pays out as an ordinary annuity. Round your answer to the nearest cent.)

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.