Lottery a Pays $1,000 Today and Lottery B Pays $1,750

question 46

Multiple Choice

Lottery A pays $1,000 today and Lottery B pays $1,750 at the end of five years.If the discount rate is 5%, which lottery should you choose

• A)Lottery A, because its future value is $1,276.
• B)Lottery B, because its present value is $1,371 which is more than that of Lottery A.
• C)Lottery B, because it pays $1,750 which is more than $1,000 from Lottery A.
• D)Either option gives the same value over time.

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Definitions:

Resource Market

A market where resources (like labor, capital, and land) are bought and sold, allowing businesses to acquire what they need to produce goods and services.

Resource Market

A market where resources (or inputs) for production, such as labor, land, and capital, are bought and sold.

Financial Capital

Financial capital comprises the funds necessary for businesses to buy what they need to produce their products or to provide their services, including money, credit, and other financial instruments.

Financial Responsibility

The obligation to manage one's resources prudently and ensure that all financial obligations are met.