Suppose you have a winning lottery ticket and you are given the option of accepting $3,000,000 three years from now or taking the present value of the $5,000,000 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)$2,518,860.
B)$2,591,520.
C)$2,670,000.
D)$3,000,000.

Question

Quizplus · Accepted Answer

The present value of the prize can be calculated using the formula:PV = FV / (1 + r)^nwhere:PV is the present valueFV is the future valuer is the discount raten is the number of yearsIn this case, the future value is $5,000,000, the discount rate is 6%, and the number of years is 3. Plugging these values into the formula, we get:PV = $5,000,000 / (1 + 0.06)^3 = $2,518,860Therefore, the amount you will receive if you elect to receive the present value of the prize now is $2,518,860.

Suppose You Have a Winning Lottery Ticket and You Are