Question

A state lotto has a prize that pays $1,600 each week for 20 years.

The total value of the prize: $1,664,000

If the state can earn 9% interest on investments, how much money will they need to put into an account now to cover the weekly prize payments?

--

I'm so stuck on this question! I've tried every single formula I can remember from the textbook, but I just don't get it! Apparently the answer is "$771,396.86" but I can't for the life of me understand how! Please help!

Answer 1

Answer:

Step-by-step explanation:

Start by calculating the effective rate of interest:

.09/52= .0017307

(we divide by 52 because there are 52 weeks in a year)

Then just use the annuity formula

$1600(\frac{1-(1+.0017307)^{-(20*52)}}{.0017307})=771396.864393$