Can you please help me study and learn how to figure out
Can you please help me study and learn how to figure out present
value of annuity payments. The example I am using is $1million lottery winnings, annuity is what I need to figure out, 20 year payout period for annuities, and 10% interest rate. I see the formula but I don’t understand where the 8.514 is coming from.
PV = A * [1-(1+i) ^-n)]/i
Where PV = $ 1 million (assumed, lump-sum payment) – annual payment “A” = ? and n = 20 (assumed # of years). The annual interest rate I assumed at 10% .
$1,000,000 = A * [1- (1+0.1) ^-20]/0.1
A = $1,000,000 / 8.514
= $117,459.63
We can receive annual payment of $117,459.63 for 20 years
OR Total amount received in 20 years = $2,349,192.50
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