Finding an Unknown Future Payment Amount

Alex has just won the lottery. Specifically, Alex has won the lump sum amount of $1100 but he must wait until the end of 5 years to receive the money. He is in need of cash and would rather receive a different pattern of payments: $325 today and then receive some unknown lump sum amount that will be received in 5 years. Using an interest rate of 5.50%, determine the unknown lump sum amount that would make the present value of both prizes equivalent.

© SolutionLibrary Inc. 9836dcf9d7