Question

A state lotto has a prize that pays $1,600 each week for 20 years.

The total value of the prize: $1,664,000

If the state can earn 9% interest on investments, how much money will they need to put into an account now to cover the weekly prize payments?

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I'm so stuck on this question! I've tried every single formula I can remember from the textbook, but I just don't get it! Apparently the answer is "$771,396.86" but I can't for the life of me understand how! Please help!

Answer 1

Explanation:

Start by calculating the effective rate of interest:

.09/52= .0017307

(we divide by 52 because there are 52 weeks in a year)

Then just use the annuity formula

`1600((1-(1+.0017307)^(-(20*52)))/(.0017307))=771396.864393`