Lotta Dough Just Won the State Lottery and Has Elected

question 10

Multiple Choice

Lotta Dough just won the state lottery and has elected to receive $50,000 per year for 20 years in the form of an annuity due. What is the present value of this stream of payments if money can earn 10 percent annual interest?

• A) $246,468
• B) $500,000
• C) $468,246
• D) $864,642

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market, used in the capital asset pricing model to determine expected return.

Marginal Investor

An investor whose actions and decisions regarding buying or selling a security are believed to represent the overall market sentiment.

Risk Averse

Risk averse describes an individual or entity that prefers to minimize risk, opting for lower returns with known risks rather than higher returns with unknown risks.

High-Beta Stock

Stocks that have a higher volatility compared to the market, often experiencing larger fluctuations in price than the overall market.