Suppose that you are the lucky winner of a lottery prize! Instead of a lump sum,...

 

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Suppose that you are the lucky winner of a lottery prize! Instead of a lump sum, the prize pays $2,000 at the end of each quarter, starting at the end of the first quarter for the next 5 years. The money is paid into an account earning 3.6% p.a. compounded quarterly. (a) What is the present value of this prize? (Give your answer rounded to the nearest cent.) (b) Suppose instead that the payments are made at the beginning of each quarter. What is the present value of the prize in this case? (Give your answer rounded to the nearest cent.) (c) Suppose that the present value of the prize was $50,000. How many payments of $2,000 would be made, if the payments are at the beginning of each quarter? (Give your answer rounded to the nearest number of quarters.) Suppose that you are the lucky winner of a lottery prize! Instead of a lump sum, the prize pays $2,000 at the end of each quarter, starting at the end of the first quarter for the next 5 years. The money is paid into an account earning 3.6% p.a. compounded quarterly. (a) What is the present value of this prize? (Give your answer rounded to the nearest cent.) (b) Suppose instead that the payments are made at the beginning of each quarter. What is the present value of the prize in this case? (Give your answer rounded to the nearest cent.) (c) Suppose that the present value of the prize was $50,000. How many payments of $2,000 would be made, if the payments are at the beginning of each quarter? (Give your answer rounded to the nearest number of quarters.)

Answer rating: 100% (QA)

SOLUTION a To find the present value of the prize we can use the annuity formula PV PMT x 1 1 rn r w... View the full answer