James Has Just Won the Lottery After Purchasing One $10

question 51

Essay

James has just won the lottery after purchasing one $10 lottery ticket. The state offers him the following three payout options for after-tax prize money:
1. $50,000 per year at the end of each of the next six years
2. $300,000 (lump sum) now
3. $400,000 (lump sum) six years from now
Calculate the present value of each scenario using an 8% discount rate. Round to nearest whole dollar.
Present value of annuity of $1:
$\begin{array}{|r|r|r|r|} \hline&{7 \%} & 8 \% & {9 \%} \\\hline 1 & 0.935 & 0.926 & 0.917 \\\hline 2 & 1.808 & 1.783 & 1.759 \\\hline 3 & 2.624 & 2.577 & 2.531 \\\hline 4 & 3.387 & 3.312 & 3.24 \\\hline 5 & 4.1 & 3.993 & 3.89 \\\hline 6 & 4.767 & 4.623 & 4.486 \\\hline\end{array}$ Present value of $1:
$\begin{array}{|r|r|r|r|}\hline & {7 \%} &{8 \%} &{9 \%} \\\hline 1 & 0.935 & 0.926 & 0.917 \\\hline 2 & 0.873 & 0.857 & 0.842 \\\hline 3 & 0.816 & 0.794 & 0.772 \\\hline 4 & 0.763 & 0.733 & 0.708 \\\hline 5 & 0.713 & 0.681 & 0.65 \\\hline 6 & 0.666 & 0.63 & 0.596 \\\hline\end{array}$

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Definitions:

Habituation

The process by which there is a decrease in response to a stimulus after being repeatedly exposed to it.

Attention Recovery

The process of regaining concentration and focus on a task or environment after being distracted or disengaged.

Visual-recognition Memory

The ability to recognize previously encountered objects, symbols, or individuals by sight.

Habituation

The process of becoming accustomed to a stimulus through repeated exposure, leading to a decrease in response.