Tracy won a $100 million jackpot. she can receive the jackpot as a $5 million payment each year for 20 years, or she can ask to receive the present value of all those payments all at once now. assume an annual interest rate of 5 percent. if she decides to take the present value payment, about how much will she receive? a. $52.1 millionb. $71.4 millionc. $62.3 milliond. $78.6 million

C. 62.3 million

Explanation:

This question is testing your knowledge of Annuity. In this particular case, it is testing knowledge of present value of annuity.

Before we proceed to the calculations, it is important to understand how to recognize an annuity and its purpose.

An annuity is a constant, regular, equal stream of cash-flow.

In a question like this, annuity helps us compare and understand if it is more valuable to accept some money now or look to what we will get in the future.

We would like to compare which is more profitable; collecting the $100 million now or collecting $5 million every year for 20 years.

We have to bring the two figures to the same period or base so we can compare. It is easier to bring the value of all the future streams of $5 million down to the present figure and compare with $100 million. We do this using the Present Value of Annuity formula.

P = PMT * [(1 - (1/1+r)^n) / r

Where P = Present Value

      PMT = Constant Equal Stream of Cashflow

           r  = Rate

and n     = Number of periods or years

In the question, PMT = $5 Million, r = 5%, n = 20 Years

therefore,

P = 5 million * [ (1 - (1/1.05)^20) / .05]

P = 5 Million * [(1 - (0.9524)^20) / .05]

P = 5 Million * [(1 - (0.3769) / 0.05]

P = 5 Million * [ (0.6231 / 0.05) ]

P = 5 Million * (12.4622)

P = 62.3 Million

I hope the step by step process really helps you.

steering wheels are always situated on the left side of the car.

always drive on the right side of the road.

white lines separate lanes of traffic traveling the same direction.

hashed or broken lines means you may change lanes when it is safe.

solid white lines mean stay in your lane.

yellow lines separate traffic moving in opposing directions.

hashed or broken yellow lines mean you can carefully pass, paying attention to oncoming traffic.

never cross a solid yellow line (or double yellow line).

when turning left at an intersection, pass in front of any cars that are turning left from the opposing direction (do not try to pass behind them).

use the left lane to pass other cars traveling your direction.

do not pass in the right lane unless absolutely necessary.

if you are driving in the far left hand lane and someone would like to pass you, move over to the right lane when it is safe to do so and allow them to pass.

you must always yield to pedestrians.

come to a complete stop whenever you see pedestrians trying to cross the street.

never pass a school bus if it has flashing red lights. wait until the lights have stopped.

be aware of bicyclists. often they share the road with cars and are supposed to also follow general traffic laws.

be particularly careful about driving in cities with bike lanes -- always check before turning that a bike is not coming.

it is mandatory to pull over or stop at an intersection to allow an emergency vehicle to pass you if you see one traveling with lights flashing and/or a siren running.

do not overuse your car horn. horns are used almost exclusively for emergency situations or for when you feel unsafe.

explanation: