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    Present value and interest

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    You have just won the lottery and just elected to receive $50,000 per year for 20 years. Assume that a 4 percent interest rate is used to evaluate the annuity and that you receive each payment at the beginning of the year.
    a) What is the present value of the lottery?
    b) How much interest is earned on the present value to make the $50,000-per-year payment?

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    Solution Preview

    a) The present value of lottery is the present value of the annuity due of $50,000 for 20 years. We first find the PV of ...

    Solution Summary

    The solution explains how to calculate the present value and the amount of interest earned