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Gloria Ammon Has Just Won the State Lottery and Has

question 103

Multiple Choice

Gloria Ammon has just won the state lottery and has the following three payout options for after-tax prize money: 1.$64,000 per year at the end of each of the next six years
2) $304,000 (lump sum) now
3) $502,000 (lump sum) six years from now
The annual discount rate is 9%.Compute the present value of the third option.(Round to nearest whole dollar.)
Present value of $1:
8%9%10%10.9260.9170.90920.8570.8420.82630.7940.7720.75140.7350.7080.68350.6810.6500.62160.6300.5960.56470.5830.5470.513\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}

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Definitions:

Quantity Demanded

Refers to the specific amount of a good or service that buyers are willing to purchase at a given price, at a specific point in time.

Perfectly Inelastic Supply

A market scenario where the quantity supplied is completely unresponsive to price changes at all price levels.

Supply Curve

A graph that shows the relationship between the price of a good and the quantity supplied, typically upward sloping reflecting higher prices incentivizing more supply.

Perfectly Elastic

A market condition in which demand or supply for a good or service is infinitely sensitive to changes in price, leading to immediate adjustments.

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