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

Question

Business

Ayanna Chen

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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Answers (1)

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Lauren Cooper · Answer 1

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.