Question

You just won the grand prize in a national writing contest! As your prize, you will receive $500 a month for 50 months. If you can earn 7 percent on your money, what is this prize worth to you today?

Answer 1

Present value of prize money	=	Monthly cash flow	*	Present value of annuity of 1
	=	$             500	*	43.25986
	=	$ 21,629.93
Working:
Present value of annuity of 1	=	(1-(1+i)^-n)/i		Where,
	=	(1-(1+0.005833)^-50)/0.005833		i	=	7%/12	=	0.005833
	=	43.2598643		n			=	50

Answer 2

Find the PV of an annuity:

PV = C * (1 - PV factor) / r ; PV factor = 1/(1+r)^t

Please note that C is the monthly payment and therefore t is the number of months and r is the monthly rate.

Alternatively, use Excel's PV function -> = PV(rate, periods,...). If using Excel make sure payment, rate and periods are consistent (in this case number of months , monthly payment and monthly rate)