The lottery is $60,000,000 and the state offers to pay you $3,000,000 per year for the next 20 years, or you can take the lump sum today of $29,500,000. If you choose to take the $3,000,000 per year for 20years, the state will invest that $29,500,000 today so that it can give you those payments per year for 20 years. What rate will the $29,500,000 be invested at today to insure that the $3,000,000 will be available to pay you every year for the next 20 years?
This is an annuity payment. We know the PV of annuity. Need to calculate the interest rate.
Formula for PV of annuity ...
This solution contains step-by-step calculations to determine the PV in an annuity payment with interest rate. It tells you what rate the $29,500,000 be invested currently to insure that the 3 million will be available to pay every year for the next 20 years.