If you won the lottery and were offered to receive $50,000 a year from now or an alternate sum today, given that the interest rate is 5%, how much would you expect to receive today:

Question

Quizplus · Accepted Answer

To calculate the present value of the $50,000 to be received a year from now, we need to use the formula:

PV = FV / (1 + r)^n

Where: 
PV = Present value 
FV = Future value 
r = Interest rate 
n = Number of years

Plugging in the given values, we get:

PV = 50,000 / (1 + 0.05)^1 
PV = 50,000 / 1.05 
PV = 47,619

Therefore, the best choice would be to receive $47,619 today instead of waiting for $50,000 to be received a year from now, given the interest rate of 5%.

If You Won the Lottery and Were Offered to Receive