Question

Today you won a small sweepstakes prize. Your winnings will be split into 12 monthly payments of $2,000 and the first payment is one month from today. If the annual rate of return you can get at your bank is 3%, what is the present value of your winnings

Answer 1

Answer:

$23,614.51

Explanation:

Use the present value techniques to find the present value of your winnings as follows :

Pmt = - $2,000

P/yr = 12

i = 3%

n= 1 × 12 = 12

Fv = $0

PV = ?

Using a financial calculator to enter the values as above, present value (PV) of your winnings will be $23,614.51

Answer 2

The present value of the winning is $23,614.51

Calculation of the present value

Since the monthly payment is $2,000. The number of months should be 12. The rate of interest is 3%. The future value be $0

Now for determining the present value, we have to apply the pv formula in the excel.

=--PV(RATE,NPER,PMT,FV,TYPE)

After applying the above formula, the present value should be $23,614.51

hence, The present value of the winning is $23,614.51

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