Congratulations.You just won the California State Lottery.The amount awarded is paid in 20 equal annual instalments, at the beginning of each year.You can invest your money at 6.6%, compounded annually.You have calculated that the lottery is worth $20 975 400 today.How much was the amount awarded?

Question

Quizplus · Accepted Answer

The present value of the lottery is $20,975,400 and this is the lump sum amount that is equivalent to the 20 annual installments. We can use the present value formula to calculate the amount awarded:

PV = A/(1+r)^n

Where PV = present value, A = amount awarded, r = annual interest rate, and n = number of years.

Plugging in the values we have:

20,975,400 = A/(1+0.066)^20

A = $36,000,000

Therefore, the amount awarded was $36,000,000.