Prizes are often not "worth" as much as claimed.What is the value of a prize of $5,000,000 that is to be received in 20 equal yearly payments,with the first payment beginning today? Assume an interest rate of 7%.
A) $2,833,898.81
B) $2,911,015.68
C) $2,609,144.14
D) $2,738,304.13

Question

Quizplus · Accepted Answer

Annual payment = $5,000,000 / 20 = $250,000PV = ($250,000 {(1 / 0.07) − [1 / 0.07(1.07)²⁰]}) × (1.07)PV = $2,833,898.81

Prizes Are Often Not "Worth" as Much as Claimed