You Have Just Received Notification That You Have Won the $1.4

question 6

Multiple Choice

You have just received notification that you have won the $1.4 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100^th birthday, 70 years from now. The appropriate discount rate is 8 percent. What is the present value of your winnings?

• A)$4,288.16
• B)$6,404.20
• C)$15,309.91
• D)$23,333.33
• E)$25,000.00

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Definitions:

Interest Rate

The amount charged by a lender to a borrower for the use of assets, expressed as a percentage of the principal, usually on an annual basis.

Money-Demand Curve

Illustrates the relationship between the quantity of money people want to hold and the interest rate, showing how changes in the interest rate affect the demand for money.

Federal Reserve

The central banking system of the United States, responsible for implementing the country's monetary policy and regulating its financial institutions.

Interest Rate

The percentage of a sum of money charged for its use, typically expressed as an annual percentage of the principal.