Your girlfriend just won the Florida lottery.She has the choice of $15,900,000 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? Disregard taxes.

Question

Quizplus · Accepted Answer

The rate of return built into the annuity can be calculated using the present value of an annuity formula. Solving for the interest rate that equates the present value of the annuity payments ($1,050,000 per year for 20 years) to the lump sum amount ($15,900,000) gives approximately 2.81%.

Your Girlfriend Just Won the Florida Lottery