Jusef has won the $3,800,000 state lottery and intends to save all of the money for his retirement.He chooses to receive an annual cash flow of $190,000 for twenty years,with the first payment to be received one year from today.How much money will be in his retirement account in twenty years if he can reinvest his money at an annual rate of 8.75%?
A)$9,374,989
B)$9,451,909
C)$10,007,801
D)$3,800,000

Question

Quizplus · Accepted Answer

To solve this problem, we need to calculate the present value of Jusef's cash flows and then compound that value over 20 years at an annual rate of 8.75%.

Using a financial calculator, we can find that the present value of Jusef's cash flows is $2,794,679.57.

We can then compound this value over 20 years at an annual rate of 8.75% using the formula:

FV = PV x (1 + r)n

where FV is the future value, PV is the present value, r is the annual interest rate, and n is the number of years.

Plugging in the numbers, we get:

FV = $2,794,679.57 x (1 + 0.0875)20
FV = $9,451,909.28

Therefore, the answer is B, $9,451,909.

Jusef Has Won the $3,800,000 State Lottery and Intends to Save