Jolene has just become entitled to receive equal annual payments of $10,000 for ten years from a trust fund that her grandparents had set up for her. The payments will begin immediately.
Jolene has learned she can sell the rights to these payments for a lump sum today. If Jolene can
Earn 6% on her money, what is the minimum amount for which she should sell the fund?
Round your answer to the nearest dollar.

Question

Quizplus · Accepted Answer

The minimum amount Jolene should accept is the present value of the annuity. The present value of an annuity formula is used: PV = Pmt × [(1 - (1 + r)^-n) / r]. Here, Pmt = $10,000, r = 6% or 0.06, and n = 10. Calculating this gives approximately $78,017.

Jolene Has Just Become Entitled to Receive Equal Annual Payments