Edward Hughes Has Just Won the State Lottery and Has

question 90

Multiple Choice

Edward Hughes has just won the state lottery and has the following three payout options for after-tax prize money: 1.$166,000 per year at the end of each of the next six years
2) $306,000 (lump sum) now
3) $518,000 (lump sum) six years from now
The annual discount rate is 9%.Compute the present value of the second option.(Round to nearest whole dollar.)
Present value of $1:
$$\begin{array} { | c | c | c | c | } \hline & 8 \% & 9 \% & 10 \% \\\hline 1 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.681 & 0.650 & 0.621 \\\hline 6 & 0.630 & 0.596 & 0.564 \\\hline 7 & 0.583 & 0.547 & 0.513 \\\hline\end{array}$$

• A) $684,000
• B) $103,600
• C) $414,400
• D) $306,000

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Definitions:

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An organization responsible for directing economic activity according to a comprehensive plan, often in a centrally planned economy.

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Entities that engage in commercial, industrial, or professional activities with the goal of generating profits for their owners or shareholders.

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Ownership interest in a corporation in the form of common stock or preferred stock, representing a claim on its earnings and assets.

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The ability to achieve maximum productivity with minimum wasted effort or expense, or the use of resources so as to maximize the production of goods and services.