Lotta Dough just won the state lottery and has elected to receive $50,000 per year for 20 years in the form of an annuity due.What is the present value of this stream of payments if money can earn 6 percent annual interest?
A)$900,706
B)$500,000
C)$607,004
D)$607,905

Question

Quizplus · Accepted Answer

The present value of an annuity due can be calculated using the formula for the present value of an annuity due: PV = Pmt * [(1 - (1 + r)^-n) / r] * (1 + r), where Pmt is the annual payment, r is the interest rate, and n is the number of periods. Plugging in the values: PV = $50,000 * [(1 - (1 + 0.06)^-20) / 0.06] * (1 + 0.06) = $607,905.

Lotta Dough Just Won the State Lottery and Has Elected