1)

An investment opportunity promises to pay you $1,000,000 in 10 years. Assuming you think the appropriate discount rate is 10%, how much would you pay for this investment?

Group of answer choices

$100,000

$385,543

$909,090

$2,593,742

2)

An investment opportunity promises to pay you $500,000 each year for two years. Assuming you think the appropriate discount rate is 10%, how much would you pay for this. The payments will come at the end of each year.

Group of answer choices

$1,000,000

$100,000

$867,768

$909,090

3)

Youre considering purchasing a small catering business. The financials give you a pretty good estimate of annual earnings. Which would be the more appropriate discount rate to use to estimate a purchase price?

Group of answer choices

The rate paid by a well-diversified portfolio of stocks

A low rate of interest, like 0.5%, because bank rates are very low

A reasonably high rate to account for the added risk of operating a business

10% always, because the math is easier

4)

Why do most lottery winners choose a lump sum instead of the annuity?

Group of answer choices

They want to rush out and buy lots of stuff

They can safely earn more than the implicit discount rate

Probably all of them, but mostly B

They assume the state will run out of money within 30 years