Randy W. recently won the Western States Lottery of $6,500,000. The lottery pays either a total of twenty $325,000 payments per year with the first payment today (i.e., an annuity due), or $3,500,000 today
At what interest rate would Randy be financially indifferent between these two payout choices?
A) 5.37%
B) 7.36%
C) 7.76%
D) 8.00%
Answer: C
Explanation: C) This is an iterative process (trial and error). Solve using the RATE function in Excel.
MODE = BEGIN
INPUT 20 ? -3,500,000 325,000 0
KEY N I/Y PV PMT FV
CPT 7.76
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