Savannah has just won the state lottery. She will receive ten equal annual payments of $15,000, beginning one year from today. Assuming an 8% interest rate compounded annually, the present value of those receipts today is
A) $80,913.
B) $100,651.
C) $108,703.
D) $102,000.

Question

Quizplus · Accepted Answer

The present value of an annuity can be calculated using the formula PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual payment ($15,000), r is the annual interest rate (8% or 0.08), and n is the total number of payments (10). Plugging these values into the formula gives PV = $15,000 × [(1 - (1 + 0.08)^-10) / 0.08], which calculates to approximately $100,651.

Savannah Has Just Won the State Lottery