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1. Suppose you just won the state lottery, and you have a choice between receiving $3,550,000 today or a 20-year annuity of $310,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.

2. You have a chance to buy an annuity that pays $750 at the beginning of each year for 5 years. You could earn 8.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

3. Cooley Company's stock has a beta of 1.40, the risk-free rate is 1.85%, and the market risk premium is 9.50%. What is the firm's required rate of return?