Question

For winners of the California SuperLotto Plus, the choice is between a lump sum and annual payments that increase from 2.5% for the first year to 2.7% for the second year and then increase by 0.1% per year to 5.1% for the 26th

payment. The lump sum is equal to the net proceeds of bonds purchased to fund the 26 payments. This is estimated at 45% to 55% of the lump sum amount. At what interest rate is the present worth of the two payment plans equivalent if the lump sum is 45% ? If it is 55%?

Answer 1

To determine at what interest rate the present worth of the two payment plans is equivalent, we need to compare the present value of each plan when the lump sum is 45% and when it is 55%.

Step-by-step explanation:

The present worth of the two payment plans can be calculated using the concept of present value. To find out at what interest rate the present worth of the two payment plans is equivalent, we need to compare the present value of each plan when the lump sum is 45% and when it is 55%. The present value of each plan can be calculated by discounting the future payments back to the present using the appropriate interest rate. By comparing the present values of the two plans, we can determine the interest rate at which they are equivalent.