Personal Finance Question?

[Nae Nae]

"Joe won a lottery jackpot that will pay him $12,000 each year for the next ten years. If the market interest rates are currently 12%, how much does the lottery have to invest today to pay out this prize to Joe over the next ten years?"

I don't understand this question. I need an answer with a detailed description of how the answer was reached.

[Elle]

I'm assuming this is a homework problem for an Intro Corporate Finance course in college.

It's very simple. You need to find the present value of an annuity.

The annuity amount is $12,000
n=10 years
i=12

Go get your finance book, go to the appendix to the Present Value of an Annuity Chart, and look up the PVifa for n=10, i=12.

PV= (annuity amount) (PVifa)

PV= answer