Congratulations You Have Just Won the Tuition Lottery! the Lottery

question 43

Multiple Choice

Congratulations you have just won the tuition lottery! The lottery pays out four beginning-of-the-year cash flows of $50,000 each with the first cash flow today and the remaining cash flows to follow at the start of years 2,3,and 4.Since the lottery is managed by the Fergetaboutit University system you are considering their offer of a lump sum of $160,000 today.If after considering all of he relevant economic factors,you conclude it is reasonable to use a 12% interest rate to compare these two offers.Which offer should you take and why?

• A)Take the lump sum because the annuity PV is only $151,867.47.
• B)Take the annuity because the PV of $170,091.56 is greater than the lump sum.
• C)Take the annuity because the PV of $238,966.40 is greater than the lump sum.
• D)Take the lump sum because the annuity PV is only $135,595.95.

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Definitions:

Cold War

A period of geopolitical tension between the Soviet Union and the United States, along with their respective allies, from the end of World War II in 1945 until the collapse of the Soviet Union in 1991, characterized by threats, propaganda, and other measures short of open warfare.

Bush Administration

Refers to the period of George W. Bush's presidency over the United States from 2001 to 2009, marked by events such as the 9/11 attacks and the Iraq War.

Clinton Administration

The executive branch of the U.S. government led by President Bill Clinton, serving from 1993 to 2001, noted for its policies on economy, healthcare, and international relations.

Election 2000

The United States presidential election of 2000 was a contested election between George W. Bush and Al Gore, ultimately decided by the Supreme Court in favor of Bush.