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If you were able to take the proceeds of an inheritance as a $2 million lump...

If you were able to take the proceeds of an inheritance as a $2 million lump sum or an
annuity at 6% rate of return over 20 years, what would the annuity have to be for you to be
indifferent in terms of payments, all else equal, for example no immediate need for the
money, you are not turning 95 etc.

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Answer #1

We will have to find the annuity for which the present value is USD 2 million

The formula for PV of Annuity is

PV An = A [{1 - (1/1+r)n } / r]

Where PV An = 2,000,000

A = to be determined

r = 6%

n = 20 years

Substituting the values in the above equation, we get

2000000 = A [{1 - (1/1+0.06)20 } / 0.06]

Solving for A, the answer we get is $174,369.11

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