Your girlfriend just won the Florida lottery.She has the choice of $15,000,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today.What rate of return is built into the annuity?

Question

Quizplus · Accepted Answer

The correct answer is A because the rate of return built into the annuity is 3.44%. This can be calculated using the following formula:r = (FV/PV)^(1/n) - 1where:r = rate of returnFV = future value of the annuityPV = present value of the annuityn = number of yearsIn this case, the future value of the annuity is $15,000,000, the present value of the annuity is $10,500,000, and the number of years is 20. Plugging these values into the formula, we get:r = (15,000,000/10,500,000)^(1/20) - 1r = 3.44%

Your Girlfriend Just Won the Florida Lottery