# You just won the magazine sweepstakes and opted to take unending payments. The first payment will be \$21,500 and will be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the present value of your prize at a discount rate of 7.9 percent?

You just won the magazine sweepstakes and opted to take unending payments. The first payment will be \$21,500 and will be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the present value of your prize at a discount rate of 7.9 percent? and the answer is \$925,925.92.

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## Here’s The Correct Answer of this Question:

### Explanation:

According to the scenario, the given data are as follows:

• Payment = \$50,000
• Increase rate = 2.5%
• Discount rate = 7.9%

So, we can calculate the present value of your prize by using the following formula:

Present value = total payment / (discount rate – increase rate)

= \$50,000 / (7.9% – 2.5%)

= \$50,000 / 5.4%

= \$50,000 / 0.054

= \$925,925.92

Hence the present value of prize is \$925,925.92.

This question is solved by Aquialaska

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Question – You just won the magazine sweepstakes and opted to take unending payments. The first payment will be \$21,500 and will be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the present value of your prize at a discount rate of 7.9 percent? 