Peter Smith has just won the state lottery and has the following three payout op
ID: 2533582 • Letter: P
Question
Peter Smith has just won the state lottery and has the following three payout options for
afterminus?tax
prize? money:1.
$ $66,000
per year at the end of each of the next six years2.
$ $316,000
?(lump sum) now3.
$ $510,000
?(lump sum) six years from now
The annual discount rate is? 9%. Compute the present value of the third option.? (Round to nearest whole? dollar.)
Present value of? $1:
?8%
?9%
?10%
1
0.926
0.917
0.909
2
0.857
0.842
0.826
3
0.794
0.772
0.751
4
0.735
0.708
0.683
5
0.681
0.650
0.621
6
0.630
0.596
0.564
7
0.583
0.547
0.513
A.
$104,896
B.
$ 250,000
C.
$ $101,200
D.
$ 303,960
?8%
?9%
?10%
1
0.926
0.917
0.909
2
0.857
0.842
0.826
3
0.794
0.772
0.751
4
0.735
0.708
0.683
5
0.681
0.650
0.621
6
0.630
0.596
0.564
7
0.583
0.547
0.513
Explanation / Answer
Compute present value of third option
Present value of third option = 510000*0.596 = 303960
so answer is d) 303960
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