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how large must the annual annuity payments be to make you indifferent between the two choices?

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money

Section: Chapter Questions

Problem 9.20MCE

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Concept explainers

Types of Money Market Instruments

Question

You have a choice between a lottery lump sum payout of $10,000,000 today or a series of thirty annual annuity payments (first payment one year from today). At a discount rate of 7.50%, how large must the annual annuity payments be to make you indifferent between the two choices?

$819,814.81

$846,712.36

$400,000.00

$833,102.77

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