Question

In: Finance

Your dreams of becoming rich have just come true. You have won the State of​ Tranquility's...

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

Solutions

Expert Solution

a)

b)

c)

Hence, Break-even investment rate is 8.00%

jeff jeffy answered 1 year ago
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