Question

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 $3,000,000 advertised jackpot. You can take annual payments of $150,000 at the end of the year for the next 20 years today or $1,277,035 today.

~Please Answer a-b questions below~

Homework: Chapter 4 Homewo rk Score: 0 of 1 pt 15 of 16 (13 complete) P4-31 (similar to) Lottery Your dreams of becoming rich have just come true the next 20 yoars or $1,277,035 today You have won the State of Tranqulty's Lottery The State offors you two payment plans for the $3,000,000 advertised jackpot You can take as a. If your investment rate over the next 20 years is 12 % , which payoff will you choose? b. If your investment rate over the next 20 years is 9%, which payof will you choose? e. Al what investment rate will the annuity stream of $150,000 be the same as the lump sum payment of $1,277,035 a. If your investment rale over the next 20 years is 12%, what is the present value of the $150,000 annual payments today? (Round to the nearest dollar) Enter your answer in the answer box and then click Check Answer 4 parts remaining Clear All

Answer 1

a) The present value at 12% will be:-

=PV(rate,nper,pmt)

=PV(12%,20,-150000)

=1120417

b) The present value at 9% will be:-

=PV(9%,20,-150000)

=1369282

c) Rate required:-

=RATE(20,150000,-1277035)

=10.00%