You have just won the Publisher's Clearinghouse lottery of $50,000 per year for twenty years,with the first payment today followed by nineteen more start-of-the-year cash flows.At an interest rate of 4%,what is the present value of your winnings?
A)$1,000,000.00
B)$706,696.97
C)$650,426.60
D)$470,641.18

Question

Quizplus · Accepted Answer

We need to calculate the present value of an annuity. Using the formula PV = PMT*((1 - (1 + r)^-n)/r), where PV is the present value, PMT is the annual payment, r is the interest rate, and n is the number of payments, we can calculate the present value. Plugging in the given values, we get: PV = 50,000*((1 - (1 + 0.04)^-20)/0.04) = $706,696.97. Therefore, the best choice is B.

You Have Just Won the Publisher's Clearinghouse Lottery of $50,000