You just won a contest! You will receive $100,000 a year for 20 years,starting today.If you can earn 12 percent on your investments,what are your winnings worth today?

Question

Quizplus · Accepted Answer

To calculate the present value of the winnings, we need to use the formula:

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

where PV is the present value, PMT is the annual payment ($100,000), r is the interest rate (12%), and n is the number of years (20).

Plugging in the values, we get:

PV = 100,000 * [(1 - (1 + 0.12)^-20) / 0.12]
PV = 100,000 * [(1 - 0.03118) / 0.12]
PV = 836,577.69

Therefore, the winnings are worth $836,577.69 today.

You Just Won a Contest! You Will Receive $100,000 a Year