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 $3,000,000 now. The sponsor of the prize uses a 5% discount rate. If you elect to receive the present value of the prize now, the amount you will receive is
A) $2,591,520.
B) $2,518,860.
C) $2,670,000.
D) $3,000,000.

Question

Quizplus · Accepted Answer

The present value (PV) is calculated using the formula PV = FV / (1 + r)^n, where FV is the future value ($3,000,000), r is the discount rate (5% or 0.05), and n is the number of years (3). Plugging in the values: PV = $3,000,000 / (1 + 0.05)^3 = $2,591,520.

Suppose You Have a Winning Lottery Ticket and You Are