Question

Suppose you just won the state lottery, and you have a choice between receiving $2,700,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. Assuming both choices have the same present value, what rate of return is built into the annuity

Answer 1

In the $250,000 for 20 years you'd get a total of $5,000,000 21 years from now. In the other one you'd receive $2,700,000 today. The difference is $2,300,000