Question: Five years ago your favorite aunt won a 1 000 000 lottery

Five years ago, your favorite aunt won a $1,000,000 lottery. The prize money is paid out $50,000 per year for twenty years. Unfortunately, your aunt needs as much as $250,000 cash now to pay for medical bills that she and your uncle incurred as a result of an accident. A local finance company has proposed to provide her with the $250,000 cash in return for the $50,000 annual payments over the next nine years.
a. What is the interest rate implicit in the local finance company proposal?
b. What advice would you give to your aunt?

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  • CreatedMarch 27, 2015
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