19

.

In August 1994, the Wall Street Journal reported that the winner of the Massachusetts State Lottery prize

had the misfortune to be both bankrupt and in prison fo

r fraud. The reported prize was $10,000,000,with 19

equal annual installments remaining to be paid out. (There were 20 annual installments of $500,000 to pay

out the $10 million, but the winner had just received the first payment). The bankruptcy court jud

ge ruled

that the prize should be sold off to the highest bidder and the proceeds used to pay off the creditors.

Enhance Reinsurance Company was reported to have offered $4.2 million. What rate of return would the

company receive with that bid?

A)

8.29%

B

)

12.34%

C)

11.66%

D)

9.94%