 Business
4 June, 15:02

# You just won the magazine sweepstakes and opted to take unending payments. The first payment will be \$50,000 and will be paid one year from today. Every year thereafter, the payments will increase by 2.5 percent annually. What is the present value of your prize at a discount rate of 7.9 percent?

+2
Answers (1)
1. 4 June, 16:27
0
The correct answer is \$925,925.92.

Explanation:

According to the scenario, the given data are as follows:

Payment = \$50,000

Increase rate = 2.5%

Discount rate = 7.9%

So, we can calculate the present value of your prize by using following formula:

Present value = total payment / (discount rate - increase rate)

= \$50,000 / (7.9% - 2.5%)

= \$50,000 / 5.4%

= \$50,000 / 0.054

= \$925,925.92

Hence the present value of prize is \$925,925.92.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “You just won the magazine sweepstakes and opted to take unending payments. The first payment will be \$50,000 and will be paid one year from ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.