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Can you please help me study and learn how to figure out present value of annuity payments. The example I am using is $1million lottery winnings, annuity is what I need to figure out, 20 year payout period for annuities, and 10% interest rate. I see the formula but I don't understand where the 8.514 is coming from.
PV = A * [1-(1+i) ^-n)]/i
Where PV = $ 1 million (assumed, lump-sum payment) - annual payment "A" = ? and n = 20 (assumed # of years). The annual interest rate I assumed at 10% .
$1,000,000 = A * [1- (1+0.1) ^-20]/0.1
A = $1,000,000 / 8.514
= $117,459.63
We can receive annual payment of $117,459.63 for 20 years
OR Total amount received in 20 years = $2,349,192.50
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