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Congratulations! You just won a very special kind of lottery. Instead of receiving a large lump...

Question:

Congratulations! You just won a very special kind of lottery. Instead of receiving a large lump sum now, for tax reasons this lottery makes equal yearly payments of $5,760 for the rest of your life! The only catch is that you have to wait 2 years for the first payment. What is the present value of this lottery prize? The annual rate of interest is 8%.

Perpetuity:

Investors purchase perpetuity plans to stabilize their prospective income and ensure constant earnings during their lifetime. Perpetuity calculation helps make a good retirement plan that allows the retired individual to earn money forever.

Answer and Explanation: 1

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Calculation using the present value of delayed perpetuity formula and present value factor:

{eq}\begin{align*} {\rm\text{Present Value}} &=...

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How to Calculate the Present Value of an Annuity

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Chapter 8 / Lesson 3
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Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.


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