You have just won the Reader's Digest lottery of $5,000 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 5%,what is the present value of your winnings?
A)$100,000.00
B)$65,426.60
C)$62,311.05
D)$47,641.18

Question

Quizplus · Accepted Answer

This problem involves calculating the present value of an annuity. The formula for the present value of an annuity is:

PV = C * [(1 - (1 + r)^(-n)) / r]

where PV is the present value, C is the annual cash flow, r is the interest rate, and n is the number of years. Plugging in the given values, we get:

PV = 5000 * [(1 - (1 + 0.05)^(-20)) / 0.05] = $65,426.60

Therefore, the best choice is B, with the present value of $65,426.60.

You Have Just Won the Reader's Digest Lottery of $5,000