Edward Hughes Has Just Won the State Lottery and Has

question 147

Multiple Choice

Edward Hughes has just won the state lottery and has the following three payout options for after-tax prize money: 1.$166,000 per year at the end of each of the next six years
2) $306,000 (lump sum) now
3) $518,000 (lump sum) six years from now
The annual discount rate is 9%.Compute the present value of the second option.(Round to nearest whole dollar.)
Present value of $1:
$$\begin{array} { | l | r | r | r | } \hline & 8 \% & 9 \% & 10 \% \\\hline 1 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.681 & 0.650 & 0.621 \\\hline 6 & 0.630 & 0.596 & 0.564 \\\hline 7 & 0.583 & 0.547 & 0.513 \\\hline\end{array}$$

• A) $684,000
• B) $103,600
• C) $414,400
• D) $306,000

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Definitions:

Board Of Directors

A group of individuals elected to represent shareholders and oversee the major decisions and policies of a company.

Par Value

Par Value is the face value of a bond or a stock as stated by the issuing company, which may not reflect the actual market value.

Market Value

The current price at which an asset or service can be bought or sold in a market.

Own Name

The legal identification used by an individual or entity for conducting transactions or signing contracts.