Suppose you have a winning lottery ticket and you have the option of accepting $3,000,000 three years from now or taking the present value of the $3,000,000 now. The sponsor of the prize uses a 6% discount rate. If you elect to receive the present value of the prize now, the amount you will receive is
A) $2,518,858.
B) $2,591,520.
C) $2,670,000.
D) $3,000,000.

Question

Quizplus · Accepted Answer

To find the present value of the prize, we need to use the formula:

Present value = Future value / (1 + r)^n
where r is the discount rate and n is the number of years.

Plugging in the values, we get:

Present value = 3,000,000 / (1 + 0.06)^3
= 3,000,000 / 1.191016
= $2,518,858 (rounded to nearest dollar)

Therefore, the best choice is to take the present value of the prize now, which is $2,518,858.

Suppose You Have a Winning Lottery Ticket and You Have