You won the "$1,000 per year forever" lottery.You decided to convert such prize into a lump sum payment.The interest rate is 2% per year.How much is this lump sum payment ?

Question

Quizplus · Accepted Answer

To determine the lump sum payment, we need to calculate the Present Value (PV) of $1,000 per year indefinitely. Using the formula PV = C / r, where C is the cash flow per period and r is the interest rate, we get:

PV = $1,000 / 0.02 = $50,000

Therefore, option C is the correct answer as it represents the lump sum payment that would be equivalent to receiving $1,000 per year forever at a 2% interest rate.

You Won the "$1,000 Per Year Forever" Lottery