Answer:
Answer is $6,079,058.25
Explanation:
This is a simple present value problem.
Present value of annuity shows the worth of annual payments which is present.
As per the given statement, grand prize of lottery is $10 million. This is payable over 20 years at $500,000 per year. The interest rate is 6%.
To find the real worth of the grand prize, each $5 million payment must be "brought back" to their current value at a 6% per year rate.
N = 20; PMT = 500,000; FV = 0 ; I = 6% ; Payments in BEGIN mode.
PV= Cash flow/ (1+rate of return) to the power n
PV will be addedc exponential power 20 times giving answer as $6,079,058.25
Hence, PV = $6,079,058.25
