Problem
Interest rate with annuity. A local government is about to run a lottery. but does not want to be involved in the payoff if a winner picks an annuity payoff. The government contracts with a trust to pay the lump-sum payout to the trust and have the trust (probably a local bank) pay the annual payments. The first winner of the lottery chooses the annuity and will receive $150,000 a year for the next 25 years. The local government will give the trust $2,000,000 to pay for this annuity.
What investment rate must the trust earn to break even on this arrangement? What investment rate must the trust earn to break even on this arrangement?