In: Finance
Your dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery. The State offers you two payment plans for the $6,000,000 advertised jackpot. You can take annual payments of $300,000 at the end of the year for the next 20 years or $2,945,444 today.
a. If your investment rate over the next 20 years is 9%, which payoff will you choose?
b. If your investment rate over the next 20 years is 6%, which payoff will you choose?
c. At what investment rate will the annuity stream of $300,000 be the same as the lump-sum payment of $2,945,444