The Florida lottery agrees to pay the winner $250,000 at the end of each year for...
The Florida lottery agrees to pay the winner $250,000 at the end of each year for the next 20 years. What is the future value of this lottery if you plan to put each payment in an account earning 9 percent?
Homework Answers
| FV of annuity | ||
| The formula for the future value of an ordinary annuity, as opposed to an annuity due, is as follows: | ||
| P = PMT x ((((1 + r) ^ n) - 1) / i) | ||
| Where: | ||
| P = the future value of an annuity stream | ||
| PMT = the dollar amount of each annuity payment | ||
| r = the effective interest rate (also known as the discount rate) | ||
| i=nominal Interest rate | ||
| n = the number of periods in which payments will be made | ||
| Annual payment | 250,000 | |
| Time | 20 | Years |
| Interest | 9% | |
| FV= | 250000*((((1 + 9%) ^ 20) - 1) / 9%) | |
| FV= | 12,790,030 | |
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