The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Winston wins the lottery.He wins $20,000 per year to be paid to him for 10 years.The state offers him the choice of a cash settlement now instead of the annual payments for 10 years.If the interest rate is 6%, what is the amount the state will offer for a settlement today?
A) $147,200
B) $154,440
C) $175,000
D) $200,000

Question

Quizplus · Accepted Answer

The present value of an annuity formula is used to calculate the cash settlement. Using the present value of annuity factor for 10 years at 6% from the tables, the calculation is $20,000 multiplied by the factor, which results in $147,200.

The Solution to This Problem Requires Time Value of Money