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Present and future value tables of $1 at 3% are presented below:

-Jose wants to cash in his winning lottery ticket.He can either receive five $5,000 annual payments starting today,or he can receive a lump-sum payment now based on a 3% annual interest rate.What would be the lump-sum payment?
A)$23,586.
B)$22,899.
C)$21,565.
D)$23,000.

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Use the following to answer questions 
Present and future value tables of $1 at 3% are presented below:
 
-Jose wants to cash in his winning lottery ticket.He can either receive five $5,000 annual payments starting today,or he can receive a lump-sum payment now based on a 3% annual interest rate.What would be the lump-sum payment?
A)$23,586. 
B)$22,899. 
C)$21,565. 
D)$23,000.

Quizplus · Accepted Answer

The lump-sum payment is the present value of the five annual payments. The present value of an annuity is given by the formula:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present valuePMT is the annual paymentr is the annual interest raten is the number of yearsIn this case, the annual payment is $5,000, the annual interest rate is 3%, and the number of years is 5. Plugging these values into the formula, we get:PV = 5000 * [1 - (1 + 0.03)^-5] / 0.03PV = 5000 * [1 - 0.8626] / 0.03PV = 5000 * 0.1374 / 0.03PV = 23,586.21Therefore, the lump-sum payment would be $23,586.

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