Q. at what required rate of return are you indifferent between a $250,000 lump sum payment or a lifetime annuity of $51,200? You will live for 15 years after retirement.
I think this has to be done thru trial and error and I arrived at 24.8% as the answer which makes both the lump sum and the annuity the same amount after 15 years, but my instructor deducted 4 points with no explanation. Should I have figured out what interest rate $51,200 needs to turn into $250,000 after 15 years instead and just assumed I wouldn't earn any interest on the $250,000?
I think this has to be done thru trial and error and I arrived at 24.8% as the answer which makes both the lump sum and the annuity the same amount after 15 years, but my instructor deducted 4 points with no explanation. Should I have figured out what interest rate $51,200 needs to turn into $250,000 after 15 years instead and just assumed I wouldn't earn any interest on the $250,000?