John Jones won a lottery that will pay him €2,000,000 after twenty years. Assuming an appropriate interest rate is 5% compounded annually, what is the present value of this amount?

Question

Quizplus · Accepted Answer

To calculate the present value of the lottery winnings, we need to use the formula for present value of a future sum:
PV = FV / (1 + r) ^ n
PV = present value
FV = future value
r = interest rate
n = number of years

In this case, FV = €2,000,000, r = 5%, and n = 20. Substituting these values into the formula, we get:
PV = 2,000,000 / (1 + 0.05) ^ 20
PV = €753,780

Therefore, the correct answer is D.

John Jones Won a Lottery That Will Pay Him €2,000,000