You have just won a $5 million lottery to be received in twenty annual equal payments of $250,000.What will happen to the present value of your winnings if the interest rate increases during the next 20 years?
A)it will be worth less
B)it will be worth more
C)it will not change
D)it will increase during the first ten years

Question

Quizplus · Accepted Answer

The present value of the winnings is determined by discounting the future cash flows using the interest rate. If the interest rate increases, the discount rate will also increase, leading to a lower present value. Therefore, the winnings will be worth less if the interest rate increases during the next 20 years.

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