Answered

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you have just won the state lottery and have two choices for collecting your winnings. you can collect $109,000 today or receive $20,800 at the end of each year for the next seven years. a financial analyst has told you that you can earn 8% on your investments. Calculate the present value of both the options. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.)

Sagot :

We will choose option 1 with a present value of $109000. The present value at $109000 has a greater net present value

An annuity is a contract that you have with an insurance provider that calls for regular payments to be made by the insurer to you, either now or in the future. Either a single payment or a series of payments is required to purchase an annuity. In a similar vein, you may get your payoff in a single lump sum or over the course of several instalments.

Present value of annuity = [1 - 1/(1 + i)^n]/I

N = Number of years

I = Rate of return.

= [ 1 - 1 / ( 1 + 0.08 )7 ] / 0.08

= 5.2387

Present value = 5.2387 x 20800

= $ 108964.96

Present value as given at $109000

Learn more about annuities:

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