Suppose You Have a Choice Between Receiving a Lump-Sum Payment

question 95

Multiple Choice

Suppose you have a choice between receiving a lump-sum payment of $10,000 today or four annual payments of $2,750 (with the first payment today) .Of the following,which is the lowest annual interest rate at which you would prefer the lump-sum payment over the four annual payments?

• A)2%
• B)​5%
• C)​7%
• D)​10%

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Definitions:

Standard Deviation Units

A measure of the amount of variation or dispersion of a set of values, indicating how much the individual values differ from the mean of the sample.

Normal Distribution

A normal distribution is a bell-shaped frequency distribution curve, where most of the occurrences take place around the central peak, and the probabilities of values further away from the mean taper off symmetrically.

Standard Deviation

Standard deviation is a statistical measure that quantifies the amount of variability or dispersion in a set of data values, indicating how much the individual data points differ from the mean of the data set.

Distribution

The arrangement of values of a variable showing their observed or theoretical frequency of occurrence.