Juan Has Just Received a Prize Which Entitles Him to Receive

question 70

Multiple Choice

Juan has just received a prize which entitles him to receive annual payments of $10,000 at the end of each year for the next 10 years. He would like to sell the rights to the prize money to a financial institution, so that he can have the cash now. In order to estimate the present value of the prize, he will use a discount rate of 5%. What is the present value of the prize?
$\begin{array}{|r|c|c|c|c|c|c|}\hline \text {Present Value of }\\\text {an Annuity of \$ 1}\\\hline &5\%&6\%&7\%&8\%&9\%&10\%\\\hline1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline 2& 1.859 & 1.833 & 1.808 & 1.783 & 1.759 & 1.736 \\\hline 3& 2.723 & 2.673 & 2.624 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.546 & 3.465 & 3.387 & 3.312 & 3.240 & 3.170 \\\hline 5& 4.329 & 4.212 & 4.100 & 3.993 & 3.890 & 3.791 \\\hline6& 5.076 & 4.917 & 4.767 & 4.623 & 4.486&4.355 \\\hline7& 5.786& 5.582 & 5.389 & 5.206 & 5.033&4.868 \\\hline8& 6.463 & 6.210 & 5.971 & 5.747 & 5.535&5.335 \\\hline9& 7.108 & 6.802 & 6.515 & 6.247 & 5.995&5.759\\\hline 10&7.722& 7.360 & 7.024 & 6.710&6.418&6.145 \\\hline\end{array}$

• A) $61,450
• B) $71,080.
• C) $77,220
• D) $71,080

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