Return on Annuity

Sparkle101

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Joined
May 30, 2009
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Please how do i calculate this problem.

Your girlfriend just won the Power Ball lottery. She has the choice of $10,000,000 today or a 30-year annuity of $500,000, with the first payment coming today. What rate of return is built into the annuity? :?
 
Sparkle101 said:
Your girlfriend just won the Power Ball lottery. She has the choice of $10,000,000 today or a 30-year annuity of $500,000, with the first payment coming today. What rate of return is built into the annuity? :?
My girlfriend? I'm marrying her RIGHT NOW!!

Change amounts to $100 today, or $5 annuity (same thing, easier...).
1st payment being today, then $95 left, and 29 years.
Let rate of return = r; then:
95(1 + r)^29 = 5[(1 + r)^29 - 1] / r

Cannot be solved directly: iteration required; ~3.08%
 
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