John Doe wins the lottery and may pick from the following three choices: total.
Assume that John Doe uses a discount rate of 5% to evaluate his choices. If he selects the first option, how much is the present value of that alternative?

Question

John Doe wins the lottery and may pick from the following three choices:  total.
Assume that John Doe uses a discount rate of 5% to evaluate his choices. If he selects the first option, how much is the present value of that alternative?

Quizplus · Accepted Answer

To calculate the present value of the first option, we need to use the formula PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the discount rate, and n is the number of periods. Plugging in the values, we get PV = 1,000,000 / (1 + 0.05)^30, which gives us a present value of $450,000.

Therefore, the best choice is option C, as it offers the highest present value.

John Doe Wins the Lottery and May Pick from the Following