An Michigan resident won a $1,305,535.80 lottery, for which she receives 20 annu

ID: 2659412 • Letter: A

Question

An Michigan resident won a $1,305,535.80 lottery, for which she receives 20 annual payments of

$65,276.79. Singer offered her a fixed payment today in exchange for one-half of each of the

next nine payments that she receives from her lottery winnings. Enhance Finance Services group

then paid Singer another fixed payment in exchange for these cash flows.

a) Singer offered $140,000 to the lottery winner. What was the discount rate that Singer used to

value the cash flows?

b) Singer sold the cash flows to Enhance at an interest rate of 8.96%. What was Singer

An Michigan resident won a $1,305,535.80 lottery, for which she receives 20 annual payments of

$65,276.79. Singer offered her a fixed payment today in exchange for one-half of each of the

next nine payments that she receives from her lottery winnings. Enhance Finance Services group

then paid Singer another fixed payment in exchange for these cash flows.

a) Singer offered $140,000 to the lottery winner. What was the discount rate that Singer used to

value the cash flows?

PMT = 65276.79*1/2 = $ 32,638.395,

nper= 9

pv =140000

Discount rate=???

Rate= rate(nper,pmt,pv,fv)

Rate = rate(9,32638.395,-140000,0)

Rate = 18.09%

Discount Rate = 18.09%

b) Singer sold the cash flows to Enhance at an interest rate of 8.96%. What was Singer

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