You've Just Won $1 Million Dollars in a Lottery

question 15

Multiple Choice

You've just won $1 million dollars in a lottery.For your prize,you may except a $1 million lump sum paid immediately,a constant perpetuity of $80,000 per year (with the first payment arriving in one year) ,or a stream of cash flows that starts at $45,000 next year and grows at 3.5% per year in perpetuity.If the interest rate is 8%,which of these choices has a higher present value?

• A) a $1 million lump sum
• B) a constant stream of $80,000 per year in perpetuity
• C) a stream that begins at $45,000 and grows at 3.5% in perpetuity
• D) all three choices have the same present value

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Definitions:

Nonverbal Cues

Subtle signals, often unconscious, expressed through body language, facial expressions, and other nonverbal behaviors, indicating feelings or intentions.

Alert Tone

A sound or message that is designed to warn or inform individuals of important information.

Behavioral Interview

Interview in which you are asked to relate specific incidents and experiences from your past.

Behavioral Interview

A job interview technique where candidates are asked to describe past behavior as an indicator of their future performance.