\"A judge denied a 94-year-old woman s attempt to force a Lottery Commission to
ID: 1132782 • Letter: #
Question
"A judge denied a 94-year-old woman s attempt to force a Lottery Commission to pay her $4.58 million winnings up front on the grounds that she otherwise won't live long enough to collect it all. The woman already received an immediate payment of $108,555, and she will receive 22 annual gross checks of $203,248. If a buyer offers to pay the woman $2.3 million for the 22 annual gross checks of $203,248, what is the buyer's annual interest rate? Enter your answer as a percentage between 0 and 100."
Explanation / Answer
The rate of interest for 25 payments of 118173 each that has a present value of 2 million is given by
2 million = 118173 x (P/A, i%, 25)
16.92433974 = (P/A, i%, 25)
Trial and error gives interest rate i% = 3.25% Hence the buyer's annual interest rate is 3.25%
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