Prizes are often not "worth" as much as claimed. What is the value of a prize...

Prizes are often not "worth" as much as claimed. What is the value of a prize of $5,000,000 that is to be received in 20 equal yearly payments, with the first payment beginning today? Assume an interest rate of 7%.

$2,833,898.81 A

$2,911,015.68 B

$2,609,144.14 C

$2,738,304.13 D

Expert Solution

equal yearly payments=5,000,000/20

=$250,000

Present value of annuity due=(1+rate)*Annuity[1-(1+interest rate)^-time period]/rate

=1.07*250,000[1-(1.07)^-20]/0.07

=250,000*11.3355952

=$2,833,898.81(Approx)

jeff jeffy answered 2 years ago

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