Jack and Diane are lottery winners. They hold the ticket to the Grand Prize in the “Set for Life” Prize that makes 20 consecutive annual payments of $50,000 starting immediately. Thus, they receive the first payment at the time they turn the ticket in, the second payment in one year, the third in two years, and so on so that the last payment is received in 19 years. There is one hitch: the eleventh payment (to be received at the end of year 10) is not $50,000 but only $20,000 (that is, this payment is $30,000 LESS than the other 20). 

What comes closest to the present value of the prize if interest rates are 4%?

Answer rating: 100% (QA)

To calculate the present value of the prize we need to discount each of the future cash flows to the... View the full answer