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5 September, 18:19

2. In a recent large PowerBall lottery, the prize was reported to be worth $590 million, which could be taken in 25 equal annual installments of $23.6 million beginning today or as a single payment today of $334 million. a. What interest rate is the lottery commission using

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  1. 5 September, 21:06
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    5.5%

    Explanation:

    This is an Annuity Due question. In an annuity due, recurring payments occur at the beginning of the yearIt is asking for the RATE. Using a financial calculator (on BEG mode), input the following;

    Duration; N = 25

    Recurring payment; PMT = 23.6

    Present value; PV = - 334

    One-time future cashflow; FV = 0

    Then compute the interest rate; CPT I/Y = 5.499%

    Therefore, the lottery commission is using about 5.5% interest rate.
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