You just won the state lottery. The state gives you the choice of $1,000,000 today or...
You just won the state lottery. The state gives you the choice of $1,000,000 today or a 20-year annuity of $94,390, with the first payment coming one year from today. What rate of interest is built into the annuity?
Homework Answers
Let rate of interest be x%
At this rate;present value of annuity=1,000,000
1,000,000=94,390/1.0x+94,390/1.0x^2+..............+94,390/1.0x^20
Hence x=rate of interest=7%(Approx).
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