Question

You won a lottery that will make equal payments of $1,000 at the end of each year for the next eight years. If the annual interest rate stays constant at 5%, what is the value of these payments in today’s dollars? (Note: Round your answer to the nearest whole dollar.)

Answer 1

$6,463.21

Step-by-step explanation:

The computation of the value of these payments in today’s dollars is shown below:

Present value = Annual payments × PVIFA factor for 8 years at 5%

= $1,000 × 6.4632 1

= $6,463.21

Refer to the PVIFA table

Basically we multiplied the annual payments with the PVIFA factor so that the present value could come

Hence, the present value is $6,463.21