Tessa won the lottery for $2,500,000 but due to a change in state laws she will not be able to collect it for three years. Ralph is willing to give her a lump sum today in return for the payment in three years. If current interest rates are 14% per year, how much will Tessa receive today?
A) $1,687,430
B) $5,804,080
C) $2,500,000
D) $3,703,860

Question

Quizplus · Accepted Answer

To find the present value of the future $2,500,000, we use the formula for present value: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the annual interest rate, and n is the number of years. Plugging in the values: PV = $2,500,000 / (1 + 0.14)^3 ≈ $1,687,430.

Tessa Won the Lottery for $2,500,000 but Due to a Change