Question

Jose wants to cash in his winning lottery ticket. He can either receive seven, $2,000 annual payments starting today, or he can receive one lump-sum payment today based on a 3% annual interest rate. What would be the lump-sum payment

Answer 1

Hence the Lumpo-sum Payment is $12834.38(Approx).

Step-by-step explanation:

Present value of annuity due= (1+interest rate)*Annuity[1-(1+interest rate)^-time

period]/rate

= (1+0.03) x 2000 [1-(1+0.03)^ -7] / 0.03

`=1.03* 2000[1-(1.03)^(-7) ]/0.03\\=2060 * 6.23\\=$12834.38(Approx).`