Assume that you have just won $5,000,000 in the lottery and will receive $250,000 per year for the next 20 years. How much is your prize worth today if the interest rate is 8%?
A)$1,072,731
B)$2,454,525
C)$2,185,219
D)$1,165,250

Question

Quizplus · Accepted Answer

The prize's present value can be calculated using the formula for the present value of an annuity: PV = P * [(1 - (1 + r)^-n) / r], where P is the payment amount, r is the interest rate per period, and n is the number of periods. Plugging in the values ($250,000 for P, 0.08 for r, and 20 for n), the calculation gives a present value of approximately $2,454,525, making option B the correct answer.

Assume That You Have Just Won $5,000,000 in the Lottery