Question

Edward won a lottery that will pay him $590000 at the end of each of the next twenty years. Assuming an appropriate interest rate is 10% compounded annually, what is the present value of this amount?

Answer 1

PV= $5,023,002.595

Step-by-step explanation:

Giving the following information:

Annual payment= $590,000

Number of periods= 20 years

Interest rate= 0.10

First, we need to calculate future value:

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

A= annual payment

FV= {590,000*[(1.1^20) - 1]} / 0.1

FV= $33,792,249.7

Now, the present value:

PV= FV/(1+i)^n

PV= 33,792,249.7 / (1.1^20)

PV= $5,023,002.595