Prizes are often not "worth" as much as claimed. Place a value on a prize of $5,000,000 that is to be received in equal annual payments over the next 20 years, with the first payment beginning today. Assume an interest rate of 7 percent over the 20-year period. A) $2,212,652B) $2,648,504C) $2,833,899D) $2,950,567A

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Business

Barrett Herring

17 January, 17:50

Prizes are often not "worth" as much as claimed. Place a value on a prize of $5,000,000 that is to be received in equal annual payments over the next 20 years, with the first payment beginning today. Assume an interest rate of 7 percent over the 20-year period. A) $2,212,652B) $2,648,504C) $2,833,899D) $2,950,567A

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Sergio Osborn · Answer 1

C) $2,833,899

Explanation:

This is an "annuity due " type of question, it is asking for the Present value (PV) or present worth of an annually recurring equal payment; PMT.

First, divide 5,000,000 by 20 to get equal payment = 250,000

Using a financial calculator on "BGN" mode, input the following;

N = 20

I/Y = 7%

PMT = 250,000

FV = 0

then compute present value; CPT PV = 2,833,898.81

Therefore, it will be worth $2,833,899