TVM14 - Present Value of an Annuity – Lottery example
This is a present value of an annuity problem in which the present value is the unknown.
You have just won $1,000,000 in your state’s weekly lottery. You will be receiving $50,000 per year for 20 years. Assuming an interest rate of 8.5%, what is the present value of that annuity?
This is a present value of an annuity problem, in which the present value is the unknown.
First, plug in the known values into the appropriate cells:
The number of periods – NPER – is 20
The interest rate – Rate – is 8.5%
The payment – PMT – is $50,000
Going to the formulas tab, look for the PV function.
The function wizard pops up
The PV is ($473,167)