Judy Bright Has Just Won the Lottery

question 26

Multiple Choice

Judy Bright has just won the lottery.She can elect to receive her winnings in equal payments of $200,000 a year for the next ten years on December 31 or to receive $2,000,000 immediately.If the current interest rate is 6%,which choice will provide the highest amount? Use Table PV-2.

• A)Receiving $2,000,000 immediately.
• B)Taking equal payments for 10 years.
• C)It does not matter since either choice provides the same amount.
• D)Refusing to accept the winnings since it is not enough.

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Definitions:

CFA Institute Standards

Ethical and professional guidelines set forth by the CFA Institute to ensure integrity in financial analysis and investment professions.

SIPC

Securities Investor Protection Corporation, an organization that protects investors from the loss of cash and securities in case a brokerage firm goes bankrupt.

Securities Exchange Act

A U.S. federal law enacted in 1934 that regulates the securities industry, including the secondary trading of securities, to protect investors against malpractices.

NYSE Arca System

An electronic securities exchange in the U.S. for exchange-traded products, including ETFs and equity options.