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You are considering two lottery payment options:
Option A pays $10,000 today and Option B pays $20,000 at the end of ten years.Assume you can earn 6 percent on your savings.Which option will you choose if you base your decision on present values?
Which option will you choose if you base your decision on future values?
Explain why your answers are either the same or different.
Systematic Risk
The danger that affects the whole market or a specific sector of the market, commonly referred to as market risk or non-diversifiable risk.
Expected Returns
The anticipated return on an investment, representing the mean of the probability distribution of the possible returns.
Reward to Risk Ratio
A metric used to compare the expected returns of an investment to the amount of risk undertaken to capture these returns.
Total Risk
The overall risk associated with an investment, including both systematic and unsystematic risks.
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