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16 May, 15:05

Suppose you just won the state lottery, and you have a choice between receiving $3,025,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity

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  1. 16 May, 17:12
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    r = 5.35%

    Explanation:

    Given:

    n = 20 PV = - $3,025,000 (the amount you should have if you receive a lump-sum today) PMT = $250,000

    To find the rate of return that built into the annuity, we can use Excel with following information of the function:

    =rate (nper, pmt, - PV)

    rate (20,250000, - 3025000)

    r = 5.35%

    Hope it will find you well.
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