Question

David won the lottery. He can take a single lump sum payout of $10 million dollars or receive $750,000 per year for the next 25 years. What rate of return would David need to break even if he took the lump sum amount instead of the annuity

Answer 1

The rate of return would David need to break even if he took the lump sum amount instead of the annuity is 5.56%.

Rate of return to break even

First step is to calculate the rate for the period of 25 years

Rate= Single lump sum/Dollar amount received×100

Rate=$10 million/$750,000×100

Rate= 13.33%

Second step

Using annuity date to find the rate of return needed to break even. Based on the  Annuity table 13.33% for the time period of 25 years is 5.56%.

Therefore the rate of return would David need to break even if he took the lump sum amount instead of the annuity is 5.56%.

Learn more about rate of return here:brainly.com/question/13275966

#SPJ1