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Suppose you just won the state lottery, and you have a choice between receiving $3,025,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity

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thaovtp1407

Answer:

r = 5.35%

Explanation:

Given:

  • n = 20
  • PV = -$3,025,000 (the amount you should have if you receive a lump-sum today)
  • PMT = $250,000

To find the rate of return that built into the annuity, we can use Excel with following information of the function:

=rate(nper, pmt, -PV)

<=> rate (20,250000, -3025000 )

<=> r = 5.35%

Hope it will find you well.

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