A local magazine is offering a $2,500 grand prize to one lucky winner.The prize will be paid in four annual payments of $625 each,starting one year after the drawing.How much would this prize be worth to you if you can earn 9 percent on your money?

Question

Quizplus · Accepted Answer

To find the present value of the prize, we need to use the formula for the present value of an annuity:

PV = PMT x [1 - (1 + r/n)^(-nt)] / (r/n)

where PV is the present value, PMT is the annual payment, r is the interest rate (as a decimal), n is the number of times interest is compounded per year, and t is the number of years.

Plugging in the given values, we get:

PV = 625 x [1 - (1 + 0.09/1)^(-4*1)] / (0.09/1) = $2,024.82

So the prize would be worth $2,024.82 to someone who can earn 9 percent on their money. The answer is (C).

A Local Magazine Is Offering a $2,500 Grand Prize to One