Answer:
Annual payment= $15,900.91
Explanation:
<u>First, we need to calculate the present value of Prize 1:</u>
PV= FV / (1 + i)^n
PV= 50,000 + [200,000 / (1.05^10)]
PV= $172,782.65
<u>Now, we need to determine the annuity that would make equal both prizes:</u>
Difference= 172,782.65 - 50,000= $122,782.65
To calculate the annuity that would have a PV of $122,782.65; we need to use the following formula:
Annual payment= (PV*i) / [1 - (1+i)^(-n)]
Annual payment= (122,782.65*0.05) / [1 - (1.05^-10)]
Annual payment= $15,900.91
