You won a lottery which pays $10,000 per year for 10 years (at the end of each year). Assuming a discount rate of 8% calculate the present value of your expected winnings.
What Is An Annuity:
In a personal finance context, an Annuity is often discussed when spreading out a lump sum payment (e.g. lottery winnings, insurance payouts, etc.). An Annuity is a constant stream of money that is assumed to be invested at a fixed rate,
Answer and Explanation:
Present value of annuity = Cash payment * (1-(1+rate of return)^(-periods))/rate of return
= 10,000 * (1+1.08^(-10))/0.08
The present value of the winnings is $182,899.19.
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Learn more about this topic:
from Algebra II TextbookChapter 21 / Lesson 15