You Have Just Won the Lottery! You Can Either Receive

question 91

Multiple Choice

You have just won the lottery! You can either receive $6,500 a year for 20 years or $100,000 as a lump sum payment today.What is the interest rate on the annuity option?

• A)2.64 percent
• B)1.68 percent
• C)2.20 percent
• D)2.45 percent
• E)1.95 percent

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Definitions:

Market Price

The amount of money a buyer pays and a seller receives for a product or service in a competitive marketplace.

Producer Surplus

The difference between the amount a producer is paid for a good compared to the minimum amount they would be willing to accept, representing profit.

Producer Surplus

The difference between the amount producers are willing to accept for a good or service and the actual amount they receive due to higher market price.

Binding Price Ceiling

A government-imposed limit on the price of a product or service that is set below the market equilibrium, leading to shortages and a decrease in supply.