You have just won $20,000 in the state lottery, which promises to pay you $1,000 (tax free) every year for the next twenty years. the interest rate is 5%. in reality, you receive the first payment of $1,000 today, which is worth $
The current value of the payment which is $1000 will be: A=P(1+r/100)^-n P=1000 r=5 % n=1 A=1000(1+5/100)^-1 A=1000/1.05 A=$952.38 The first payments of $1000 is worth $952.38 today. The value of the second $1000 is worth: A=1000(1+0.05)^-2=907.02 today
