\"A judge denied a 94-year-old woman s attempt to force a Lottery Commission to
ID: 2329777 • Letter: #
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 %
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