\"A judge denied a 94-year-old woman s attempt to force a Lottery Commission to

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

Present Value of an Annuity = Annuity x Present Value Interest Factor of an Annuity.

Present Value Interest Factor of an Annuity = [ { 1 - ( 1 / 1 + r)n / r ]

Present value of the 22 annual checks = $ 2,300,000.

PVIFA = $ 2,300,000 / $ 203,248 = 11.31622

PVIFA i= ? , n=22 = 11.3162

i = 6.72 %

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.