You just won a lottery—CONGRATULATIONS! Your parents have always told you to pla

Question

You just won a lottery—CONGRATULATIONS! Your parents have always told you to plan for the future, so since you already have a well-paying job you decide to invest rather than spend your lottery winnings. The payment schedule from the lottery commission is $100,000 after taxes at the end of year one and 19 more payments of exactly $100,000 after taxes in equal annual end-of-the-year deposits (i.e., 20 deposits of $100,000 each, the first deposit is one year from today) into your account paying 7% compounded annually. How much money will be in your account after the last deposit is made?

Explanation / Answer

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

=$100,000[(1.07)^20-1]/0.07

=$100,000*40.99549232

which is equal to

=$4,099,549.23(Approx).

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