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as present value Part C A local government is about to run a lottery but does not want to be involved in the payoff if a winner picks an annuity payoff. The government contracts with a trust to pay the lump-sum payout to the trust and have the trust (probably a local bank) pay the annual payments. The first winner of the lottery chooses the annuity and will receive $150,000 a year for the next 25 years. The local government will give the trust $2,000,000 to pay for this annuity. What investment rate must the trust earn to break even on this arrangement?
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Answer #1

Please find below the answer....

we have to use financial calculator to solve this problem
Put in calculator below -
PV 2000000
FV 0
PMT -150000
N 25
Compute I 5.56%
Therefore investment rate = 5.56%
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