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1 vote
You win your state lottery. The lottery officials offer you the following options: you can accept annual payments of $50,000 for 20 years or receive an upfront payment of $700,000. Ignoring issues like mortality tables, taxes, etc.; and assuming the first payment is made immediately, what market interest rate would make it more attractive to take the upfront payment?

User Pongahead
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8.1k points

1 Answer

3 votes

Answer:

The answer is "4.121% for 20 year".

Step-by-step explanation:

  • The $700,000 could be compared to both the current flow rate of $50 000 per year over the next 20 years.
  • It used a financial calculator or a table, as well as the inner rate of return is 4.121 percent.
  • When you are confident, it would be capable of earning more than 4.121 percent every year in the next 20 years, on average.
User Nattyddubbs
by
7.2k points
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