Author Question: Randy W. recently won the Western States Lottery of 6,500,000. The lottery pays either a total of ... (Read 211 times)

LaDunn · **on:** Jul 10, 2018

Randy W. recently won the Western States Lottery of 6,500,000. The lottery pays either a total of twenty 325,000 payments per year with the first payment today (i.e., an annuity due), or 3,500,000 today.

At what interest rate would Randy be financially indifferent between these two payout choices?
A) 5.37
B) 7.36
C) 7.76
D) 8.00

Question 2

SteelCo Production, Inc is considering the use of a lock-box collection system. SteelCo's average
check receipt is 1,350. The company invests excess cash in money-market certificates and receives
an average of 3.5 annual interest.

The lock-box system will speed up SteelCo's collections by 2.5
days. What is the maximum per check processing cost that SteelCo should be willing to pay for the
lock-box system?
A) 0.4519 B) 0.2987 C) 0.3236 D) 0.1871

akudia · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: C
Explanation: C) This is an iterative process (trial and error). Solve using the RATE function in Excel.
MODE = BEGIN
INPUT 20 ? -3,500,000 325,000 0
KEY N I/Y PV PMT FV
CPT 7.76

Answer to Question 2

C