A Lottery Winner Can Take $6 Million Now or Be

question 42

Multiple Choice

A lottery winner can take $6 million now or be paid $600,000 at the end of each of the next 16 years.The winner calculates the internal rate of return (IRR) of taking the money at the end of each year and,estimating that the discount rate across this period will be 6%,decides to take the money at the end of each year.Was her decision correct?

• A)Yes,because it agrees with the Net Present Value rule.
• B)Yes,because it agrees with the payback rule.
• C)Yes,because it agrees with both the Net Present Value rule and the payback rule.
• D)No,because it disagrees with the Net Present Value rule.
• E)No,because it disagrees with the payback rule.

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Definitions:

Slip-And-Fall

Refers to personal injury claims arising when an individual slips, trips, or falls as a result of a dangerous or neglected condition on someone else's property.

Illusory Promise

A statement that appears to be a promise but does not actually commit the person making it to any action or performance.

Accord

An agreement in law, specifically one that settles a dispute between parties by mutual consent.

Satisfaction

The fulfillment or gratification of a desire, need, or appetite.