Question

Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 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

Answer 1

Answer:

7.50%

Explanation:

The computation of the rate of return is shown below:-

$Present\ value = Payment\times \frac{1 - (1 + r)^{-n}}{i}$

Where

Number of year = 20

Present value = -$2,550,000

PMT = $250,000

Future value = $0

interest rate = 7.4929%

or

= 7.50%

For more clarification please find the attachment to reach out to the rate of return in which proper formula is to be shown for finding out the rate of return