1/ Suppose that you win a $100m lottery.

After you win, you learn that the lottery doesn't actually pay you $100m all at once, but instead it gives you 20 payments of $5m per year starting today (FYI - this is how most lotteries work, so you don't win as much as you think).

If your discount rate is 5%, what is the PV of the annual payments? Give it to the nearest million, so that 87.2 would be 87.

2/ Suppose that we estimate that climate change will cause massive damages in 100 years. If the discount rate is 4%, how much should we be willing to spend today to prevent each $1 million in damage?

$104,200

$19,800

$27,400

$61,100

3/ How would your answer to the prior question change if the discount rate was 2% instead?

It would be 7 times higher

It would be twice as high

t would be 17 times higher

It would be 1/7 as large

4/ Which of the following is true about the impact of a change in the discount rate?

a. A higher discount rate means that money in the future has a lower present value

b. The discount rate has no impact on the present value