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Richard won a lottery that will pay him $460000 at the end of each of the next twenty years. Assuming an appropriate interest rate is 8% compounded annually, what is the present value of this amount?

1 Answer

3 votes

Answer:

Present Value= $4,516,347.81

Step-by-step explanation:

Giving the following information:

Richard won a lottery that will pay him $460,000 at the end of each of the next twenty years.

interest rate= 8% compounded annually.

First, we need to calculate the final value of the investment:

FV= {A*[(1+i)^n-1]}/i

A= annual pay

FV= {460,000*[(1.08^20)-1]} / 0.08

FV= $21,050,503.58

Now, we can determine the present value:

PV= FV/ (1+i)^n

PV= 21,050,503.58/ 1.08^20

PV= $4,516,347.81

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