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?

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.

Below i have explained everything in detail regarding this question in simple manner and i am sure, your doubt will be cleared after you read our answer of this question and in case you have any question then feel free to ask me.

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

Feel free to comment below any query related to this question.

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?

Answer – $925,925.92.

About the author

John

Sweepstakes Rush is the best free online sweepstakes website 2022 that offers great prizes to win for free such as cars, cash, home, Apple iPhone, Camera, laptop and other exciting prizes. We are quickly adding new sweepstakes, Contests and Giveaways information, tips, secret code words, rare pieces, answers, solutions, clues, strategies, and resources to our site. Bookmark us today......and start Winning tomorrow!

Leave a Comment