What Is the Present Value of a Lottery Paid as an Annuity

question 108

Multiple Choice

What is the present value of a lottery paid as an annuity due for twenty years if the cash flows are $250,000 per year and the appropriate discount rate is 7.50%?

• A)$5,000,000.00
• B)$3,186,045.39
• C)$2,739,769.55
• D)$2,548,622.84

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Definitions:

Leverage

The ability to finance an investment through borrowed funds, increasing both the potential for return and the level of risk.

Investment

The act of allocating resources, usually money, with the expectation of generating an income or profit, encompassing stocks, bonds, real estate, and other assets.

Principal

An amount of money borrowed from a lender.

Equity Funds

Investment funds that primarily invest in stocks with the aim of achieving growth by capital gains and dividends for their investors.