​Suppose You Just Won the State Lottery,and You Have a Choice

question 84

Multiple Choice

​Suppose you just won the state lottery,and you have a choice between receiving $2,575,000 today or a 20-year annuity of $250,000,with the first payment coming one year from today.What rate of return is built into the annuity? Disregard taxes.

• A) ​6.41%
• B) 7.37%
• C) 4.74%
• D) ​7.44%
• E) ​7.13%

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Definitions:

Price Per Share

The value of a single share of a company's stock, determined by the market.

Death-spiral Financing

A financing arrangement typically involving the issuance of convertible securities with an adjustable conversion rate, which can lead to the dilution of existing shareholders' equity.

Preferred Shareholders

Investors who own preferred shares in a company, granting them priority over common shareholders for dividends and assets distribution, particularly in liquidation.

Stocks

Financial instruments that represent ownership in a company or corporation and represent a proportionate claim on its assets and earnings.