Tracy won a $100 million jackpot. She can receive the jackpot as a $5 million payment each year for 20 years, or she can ask to receive the present value of all those payments all at once now. Assume
An annual interest rate of 5 percent. If she decides to take the present value payment, about how
Much will she receive?

Question

Quizplus · Accepted Answer

The present value of an annuity can be calculated using the formula PV = Pmt × [(1 - (1 + r)^-n) / r], where Pmt is the annual payment, r is the interest rate, and n is the number of periods. Plugging in the values: PV = $5 million × [(1 - (1 + 0.05)^-20) / 0.05] ≈ $62.3 million.

Tracy Won a $100 Million Jackpot