You have just won a $5 million lottery to be received in twenty annual equal payments of $250,000. What will happen to the present value of your winnings if the interest rate increases during the next 20 years?
A) It will be worth less.
B) It will be worth more.
C) It will not change.
D) It will increase during the first ten years.

Question

Quizplus · Accepted Answer

As the interest rate increases, the present value of the annuity decreases. This means that the amount of money received over the 20-year period is worth less in today's dollars. Therefore, the winnings will be worth less if the interest rate increases during the next 20 years.

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