A woman wins $10,000 in a competition

Finance Jan 22, 2021

A woman wins $10,000 in a competition. This amount is placed in a trust fund earning 8% annually. She wants to take the money in 4 equal annual payments with the first payment to be made 6 years from now. What would be the size of each annual payment? *

Expert Solution

Present value of the fund= 10000

Value of the fund after 5 years= FV=PV*(1+r)^n

= 10000*(1+8%)^5

= 10000*1.469328077

= 14693.28

Using the formula PV of annuity= Annuity*(1-1/(1+rate)^number of terms)/rate

14693.28= A*(1-1/(1+8%)^4)/8%

14693.28= A*3.31212684

A= 14693.28/3.31212684

A= 4436.206918

Size of each annual payment= $4436.21

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