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Dan wins the Iowa Lottery for a grand prize of $Z. A cash payment is not an option. Rather than receiving a cash payment
Posted: Fri Jul 01, 2022 7:48 am
by answerhappygod
- Dan Wins The Iowa Lottery For A Grand Prize Of Z A Cash Payment Is Not An Option Rather Than Receiving A Cash Payment 1 (28.95 KiB) Viewed 57 times
Dan wins the Iowa Lottery for a grand prize of $Z. A cash payment is not an option. Rather than receiving a cash payment of $Z, Dan is offered two payout options: I. A 20-year annuity due with $18,391.42 annual level payments. II. A 10-year deferred perpetuity-due with $16,718.57 annual level payments. The present value of both options equals $Z at an annual effective rate of 1%. Dan chooses option II as his payout option. Dan is anxious to receive all of his winnings immediately. So, he makes a deal with his bank to receive a single payment immediately for an amount $Y. The bank calculated $Y using an effective annual interest rate of (i + 1) %. Calculate Z-Y.