Lottery. Your dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery. The State offers you two payment plans for the $6 comma 000 comma 000 advertised jackpot. You can take annual payments of $150 comma 000 at the end of the year for the next 40 years or $1 comma 466 comma 858 today. a. If your investment rate over the next 40 years is 11%, which payoff will you choose? b. If your investment rate over the next 40 years is 9%, which payoff will you choose? c. At what investment rate will the annuity stream of $150 comma 000 be the same as the lump-sum payment of $1 comma 466 comma 858?

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temdan2001 temdan2001 · Answer 1 · 2021-06-30T02:52:01+02:00

Answer:

A=1466858

B=$150000

C=10%

Explanation:

A)

Present value of $150000 at 11% for 40 years;

Using excel PV function: PV(11%,40,-150000) = $1342657.623

Therefore, 1466858 should be selected.

B)

Present value of $150000 at 9% for 40 years

= PV(9%,40,-150000) = $1613604.03

Therefore payment of $150000 should be selected

C)

Using excel rate function: RATE(40,-150000,1466858)

= 10%

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