Suppose You Have a Winning Lottery Ticket and You Are

question 33

Multiple Choice

Suppose you have a winning lottery ticket and you are given the option of accepting $3000000 three years from now or taking the present value of the $3000000 now. The sponsor of the prize uses a 6% discount rate. If you elect to receive the present value of the prize now the amount you will receive is

• A) $2518860.
• B) $2591520.
• C) $2670000.
• D) $3000000.

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Definitions:

S&P 500 Index

A market-capitalization-weighted index of 500 of the largest publicly traded companies in the U.S., used as a benchmark for the overall stock market performance.

Futures Price

The predetermined price agreed upon in a futures contract for the delivery of an asset at a future date.

Loss

A reduction in money or asset value, often the difference between purchase price and selling price if the latter is lower.

Normal Backwardation

A market condition in which the futures price is below the expected spot price, often occurring in markets expecting the price of the underlying asset to rise.