Question

A local magazine is offering a $2,500 grand prize to one lucky winner. The prize will be paid in four annual payments of $625 each, starting one year after the drawing. How much would this prize be worth to you if you can earn 9 percent on your money?A) $1,848.18B) $19,34.24C) $2,024.82D) $2,450.14E) $2,545.54

Answer 1

Answer:

The correct answer is C.

Explanation:

Giving the following information:

A local magazine is offering a $2,500 grand prize to one lucky winner. The prize will be paid in four annual payments of $625 each, starting one year after the drawing. The interest rate is 9%.

First, we find the final value:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

FV= {625*[1.09^4-1]/0.09

FV= 2,858.21

PV= FV/(1+i)^n

PV= 2,858.21/1.09^4= 2,024.83