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.
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Winston wins the lottery.He wins $20,000 per year to be paid to him for ten years.The state offers him the choice of a cash settlement now instead of the annual payments for ten 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

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.  
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Winston wins the lottery.He wins $20,000 per year to be paid to him for ten years.The state offers him the choice of a cash settlement now instead of the annual payments for ten 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

Quizplus · Accepted Answer

The present value of an annuity formula is used to calculate the lump sum 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 approximately $147,200.

The Solution to This Problem Requires Time Value of Money