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SpyIntel [72]
2 years ago
15

Lotta Dough just won the state lottery and has elected to receive $50,000 per year for 20 years in the form of an annuity due. W

hat is the present value of this stream of payments if money can earn 7 percent annual interest?
Business
1 answer:
lidiya [134]2 years ago
3 0

Answer:

PV= $529,700.71

Explanation:

Giving the following information:

Cash flow= $50,000

the number of years= 20

Interest rate= 7%

First, we need to calculate the future value of the cash flows. We will use the following formula:

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

A= annual pay

FV= {50,000*[(1.07^20)-1} / 0.07

FV= $2,049,774.62

Now, we can calculate the present value.

PV= FV/(1+i)^n

PV= 2,049,774.62/1.07^20

PV= $529,700.71

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