John Wins the Lottery and Has the Following Three Payout

question 46

Multiple Choice

John wins the lottery and has the following three payout options for after-tax prize money:
1) $56,000 per year at the end of each of the next six years
2) $300,000 (lump sum) now
3) $516,000 (lump sum) six years from now
The required rate of return is 9%.What is the present value if he selects the third option? Round to nearest whole dollar.
Present value of $1:
$$\begin{array} { | l | r | r | r | } \hline & { 8 \% } &{ 9 \% } & 10 \% \\\hline 1 & 0.926 & 0.917 & 0.909 \\\hline 2 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.794 & 0.772 & 0.751 \\\hline 4 & 0.735 & 0.708 & 0.683 \\\hline 5 & 0.681 & 0.65 & 0.621 \\\hline 6 & 0.63 & 0.596 & 0.564 \\\hline 7 & 0.583 & 0.547 & 0.513 \\\hline\end{array}$$

• A) $85,867
• B) $307,536
• C) $89,003
• D) $244,000

---

Definitions:

Age-Graded Influences

External factors that affect individuals in a similar way at similar ages, often related to societal expectations and norms.

History-Graded Influences

Events and experiences that are common to a particular generation or cohort, influencing their beliefs and behaviors.

Critical Period

A specific time during an organism's development during which the presence or absence of certain experiences has a profound and irreversible effect on the development of specific skills or knowledge.