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Posted by on Sunday, July 3, 2011 at 11:55pm.

Your brother just won the Power Ball lottery. He has the choice of $10,000,000 today or 30-year annuity of $500,000, with the first payment coming today. What rate of return is built into the annuity?

  • business math - , Monday, July 4, 2011 at 4:44pm

    Let the built-in interest rate be constant and equal to i.
    The future value of the lump sum, S, after 30 years is
    The future value of the 30 installments, P, at the end of the payments is:
    Equate S and P and solve by the bisection method or trial and error.
    I get about 2.8%.

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