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Finding the missing rate on an annuity?
I can not seem to solve this. The lottery jackpot is $ 363 million. One lump sum payout gives roughly 50% of the published value. The annuity payments option gives equal installments over 26 years. Can anyone help me solve for the rate please? I am simply attempting to prove that the $363 million is not an accurate description of the actual amount that can be won.
1 Answer
- Anonymous1 decade agoFavorite Answer
Let P = payment = 363 / 26 (in millions)
Let r = interest rate
Let A = amount received as lump sum
Let n = number of years in payments (i.e., 26)
A = P (1+r) (1 - (1+r)^-26) / r
Solve for r
It will be something around 6%