John Wins the Lottery and Has the Following Three Payout

question 95

Multiple Choice

John wins the lottery and has the following three payout options for after-tax prize money: 1. $150,000 per year at the end of each of the next six years
2. $300,000 (lump sum) now
3. $500,000 (lump sum) six years from now
The required rate of return is 9%. What is the present value if he selects the first option? Round to nearest whole dollar.
Present value of annuity of $1: Present value of $1:

• A)$750,000
• B)$672,900
• C)$450,000
• D)$450,050

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Definitions:

Issue Price

The price at which securities, such as bonds or shares, are originally sold to the public or investors by the issuing entity.

Installment Note Payable

A debt instrument that requires a series of periodic payments to the lender over a specified period of time.

Interest Expense

The expenditure an entity incurs from borrowing funds during a certain period.

Notes Payable

Written agreements in which one party promises to pay another party a definite sum of money either on demand or at a specified future date.