Imagine that youve just won the new University of Massachusetts MiniLottery, and have two choices...
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Imagine that youve just won the new University of Massachusetts MiniLottery, and have two choices for the payment of your prize. The first is to receive three equal annual payments the first coming immediately of dollars apiece. The second is to immediately receive a single payment of dollars. If the lottery Commissioner claims that the two choices are equivalent, what effective rate of interest is being assumed? Assume the interest is compounded annually.
Imagine that youve just won the new University of Massachusetts MiniLottery, and have two choices for the payment of your prize. The first is to receive three equal annual payments the first coming immediately of dollars apiece. The second is to immediately receive a single payment of dollars. If the lottery Commissioner claims that the two choices are equivalent, what effective rate of interest is being assumed? Assume the interest is compounded annually.
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