John Wins the Lottery and Has the Following Three Payout

question 54

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 second option? Round to nearest whole dollar.
Present value of $1:
$\begin{array}{|r|r|r|r|} \hline&{8 \%} &{9 \%} & 10 \% \\\hline 1 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.681 & 0.65 & 0.621 \\\hline 6 & 0.63 & 0.596 & 0.564 \\\hline 7 & 0.583 & 0.547 & 0.513 \\\hline\end{array}$

• A) $650,000
• B) $100,000
• C) $400,000
• D) $300,000

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Definitions:

Personality Traits

Enduring characteristics or qualities that define an individual's patterns of thought, feeling, and behavior.

Talkativeness

The quality of being inclined to engage in conversation or to talk a great deal.

Sex Drive

The biological compulsion towards sexual activity and behaviors.

Fraternal Twins

Siblings born at the same time who have developed from two separate eggs fertilized by two different sperm, sharing about 50% of their genes, similar to ordinary siblings.