Question

A local magazine is offering a $2,500 grand prize to one lucky winner. the prize will be paid in four annual payments of $625 each, starting one year after the drawing. how much would this prize be worth to you if you can earn 9 percent on your money

Answer 1

Present worth=625(1.09^4-1)/[0.09*(1.09^4)]
=2024.82

Answer 2

hi your question lacks the options here is the complete question and options

A local magazine is offering a $2,500 grand prize to one lucky winner. the prize will be paid in four annual payments of $625 each, starting one year after the drawing. how much would this prize be worth to you if you can earn 9 percent on your money

A. $1,848.18 B. $2,024.82 C. $2,545.54 D. $2,450.14 E. $1,934.24

Answer : $2024.82 ( B )

Explanation:

The value of the prize if paid in installments

(annual payments) * ( present value of annuity)

first we calculate the present value of annuity

present value of annuity = (1-(1+i)^-n)/i (equation 1)

i = interest earned on prize ( 9% = 0.09 )

n = number of installment payments ( 4 )

present value of annuity =
`( ( 1 - ( 1 + 0.09 )^(-4) )/(0.09)` =
`(1- 1.09^(-4) )/(0.09)`

therefore present value of annuity = 3.23972

The value of the prize would be

annual payments ( $625 ) * present value of annuity ( 3.23972 ) = $2024.82