A lottery prize worth $1,000,000 is awarded in payments of $10,000 five times a year for 20 years. Suppose the money is worth 20% compounded five times per year.

Question

A lottery prize worth $1,000,000 is awarded in payments of $10,000 five times a year for 20 years.  Suppose the money is worth 20% compounded five times per year.

What is the formula used to find the present value of the prize?

Reiny · Answer

i = .20/5 = .04 n = 20x5 = 100 PV = 10 000(1 - 1.04^-100)/.04 = 245 049.99 20% interest!!! Wow, what fantasy place is this?