Assume the Mega Millions jackpot is $65 million payable in 25 equal annual installments of $2.6
million with the first payment payableat the end ofthe first year.


a.
Explain why the Present Discounted Value (PDV) of this jackpot is less than $65million.

b.
Calculate the PDV if the interest rate were 6 percent (i=0.06).
$33.23 million

I don't get how to do the calculation for b. .....

You have to take the time value of money into account
For instance, $1 today is more than $1 that you may get 1 year from now
(this because you can invest $1 today and get $1*(1+r) in 1 year, r being the interest rate, or which is equivalent : $1 in year from now is $1/(1+r) today, $1 in 2years from now is $1/(1+r)^2, etc.)

The present value is equal to, if you get 25 equal annual instalments of $2.6m, denoting the interest rate r = 0.06 :

$2.6*[1/(1+r) + 1/(1+r)^2 + ... + 1/(1+r)^25] = $2.6*[1 - 1/(1+r)^25]/[(1+r)*(1 - 1/(1+r))]