You won a lottery which pays $10,000 per year for 10 years (at the end of each year). Assuming a...

Question:

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:

See below.

Present value of annuity = Cash payment * (1-(1+rate of return)^(-periods))/rate of return

= 10,000 * (1+1.08^(-10))/0.08

=$182,899.19

The present value of the winnings is $182,899.19.


Learn more about this topic:

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How to Find the Value of an Annuity

from Algebra II Textbook

Chapter 21 / Lesson 15
8.5K

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