Gerry wins a lottery worth $100,000.Instead of the lump sum,Gerry will be paid in monthly installments for a total of 60 payments,with the first monthly payment to be made today.If the money earns interest at j₁₂ = 6%,what is the monthly payment? A)$1933.28 B)$1923.66 C)$1433.28 D)$1426.15

Question

Quizplus · Accepted Answer

To calculate the monthly payment, we need to use the formula for present value of an annuity:

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

Where:
PV = present value of the annuity (which is the lottery winnings) = $100,000
r = monthly interest rate = 6%/12 = 0.5%
n = total number of payments = 60

Substituting these values, we get:

PMT = 100000 * [0.005*(1+0.005)^60]/[(1+0.005)^60 - 1] = $1923.66 (rounded to the nearest cent)

Therefore, the answer is choice B: $1923.66.

Gerry Wins a Lottery Worth $100,000