Question

The gaming commission is introducing a new lottery game called Infinite Progresso. The winner of the Infinite Progresso jackpot will receive $700 at the end of January, $1,700 at the end of February, $2,700 at the end of March, and so on up to $11,700 at the end of December. At the beginning of the next year, the sequence repeats starting at $700 in January and ending at $11,700 in December. This annual sequence of payments repeats indefinitely. If the gaming commission expects to sell a minimum of 850,000 tickets, what is the minimum price they can charge for the tickets to break even, assuming the commission earned 3.00 %/year/month on its investments and there is exactly one winning ticket

Answer 1

2.90

Step-by-step explanation:

From the given information:

Interest (i) = 3%

(i) = 3/12 = 0.25% per month

Equivalent monthly payment = 700 + 1000*(A/G,0.25%,12)

= 700 + 1000×5.4702446

= 6170.25

PW of payments = 6170.25 / 0.0025 = 2468100

Price per ticket to breakeven = 2468100 / 850000 = 2.90