You have a choice between a lottery lump sum payout of $5,975,191.24 today or a series of twenty annual annuity payments of $500,000 each (first cash flow one year from today). At what discount rate are you indifferent between the two choices?
A) 4.50%
B) 5.50%
C) 6.50%
D) 7.50%
Answer: B
Explanation: B) This is an iterative process (trial and error). Solve using the RATE function in Excel.
MODE = END
INPUT 20 ? -5,975,191.24 500,000 0
KEY N I/Y PV PMT FV
CPT 5.50
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