Assume That You Have Just Won $5,000,000 in the Lottery

question 130

Multiple Choice

Assume that you have just won $5,000,000 in the lottery and will receive $250,000 per year for the next 20 years. How much is your prize worth today if the interest rate is 8%?

• A)$1,072,731
• B)$2,454,525
• C)$2,185,219
• D)$1,165,250

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with less expensive ones.

Income

Beneficial returns gained from employment or investment opportunities, typically on a scheduled basis.

Price

The price one must pay to obtain a good or service.

Claret

A term often used in British English to refer to red Bordeaux wine.