Question

The winner of a state lottery will receive​ $5,000 per week for the rest of her life. If the​ winner's interest rate is​ 6.5% per year compounded​ weekly, what is the present worth of this​ jackpot? Assume there are 52 weeks per year.

Answer 1

$4,000,000

Step-by-step explanation:

The computation of Present Value of Annuity is shown below:-

Present Value of Annuity = Amount ÷ Rate of Interest

Rate of Interest = 6.5% per year compounded weekly

or Rate of Interest = 6.5 ÷ 52

= 0.125% per week

Present Value of Annuity = Amount ÷ Rate of Interest

= $5,000 ÷ 0.00125

= $4,000,000

Therefore for computing the present value of annuity we simply applied the above formula.