Suppose You Win a Small Lottery and You Are Given

question 122

Multiple Choice

Suppose you win a small lottery and you are given the following choice: You can (1) receive an immediate payment of $10,000 or (2) three annual payments, each in the amount of $3,600, with the first payment coming one year from now, the second two years from now, and the third three years from now. You would choose to take the three annual payments if the interest rate is

• A)2 percent, but not if the interest rate is 3 percent.
• B)3 percent, but not if the interest rate is 4 percent.
• C)4 percent, but not if the interest rate is 5 percent.
• D)5 percent, but not if the interest rate is 6 percent.

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Definitions:

Receivables Ratio

A financial metric used to assess how efficiently a company uses its assets, particularly measuring how many times a company collects its average receivables within a certain period.

Vertical Analysis

An accounting method where each entry in a financial statement is listed as a percentage of another item, facilitating ratio analysis and comparisons.

Statement Of Financial Position

The statement of financial position, commonly known as the balance sheet, reports a company's assets, liabilities, and shareholders' equity at a specific point in time.

Current Liabilities

Obligations or debts that a company needs to settle within one fiscal year or its operating cycle, whichever is longer.