You Have Just Won the University Lottery

question 58

True/False

You have just won the university lottery.If you graduate,you will receive a refund equal to the amount of tuition you paid in your first four years of school.However,you need money now and a firm that specializes in buying expected future cash flows has offered to discount the lottery winnings at a rate of 8% and pay you cash today in exchange for your future lottery winnings.Since you have studied finance,you insist that they discount the cash flows at 12% instead of 8% because there is some risk as to the certainty of your graduating.If the firm agrees to your demand,then this means they will increase the present value of what they will pay you today.

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Definitions:

Real Numbers

All the numbers on the number line, including rational and irrational numbers, but not imaginary numbers.

Radical Expression

An expression that includes a radical symbol, which indicates the root of a number.

Simplify

The process of making an expression or equation easier to work with, by reducing it to its most basic form.

Absolute Value

The distance of a number from zero on the real number line, disregarding whether it is positive or negative.