Question
Mini Case: Joe Blue is not a big financial expert, but on April 3, 2002, the self-employed appliance repair man did the financial news! Joe
Mini Case: Joe Blue is not a big financial expert, but on April 3, 2002, the self-employed appliance repair man did the financial news! Joe was the sole winner of an advertised $48 million BC Lottery game. Joe had a choice of one of two payoff optins: - either a lump-sum payment upfront or - an annuity over 25 years. Joe Blue accepted a lump-sum payment of $26,072,769 pretax, in full settlement of the $48 million advertised pot. The annuity alternative was equal annual payments of $1,920,000 pretax, over 25 years.
How to calculate interest rate?
Did Joe Blue make a sound financial decision as to how he should receive his winnings? Should he have taken the stream of payments instead of the lump sum? Please detail your logic in writing and show your calculations.
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