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1. Which lottery payout scheme is better? Suppose you win a raffle held at a neighborhood elementary school fundraiser and are given the choice between
1. Which lottery payout scheme is better? Suppose you win a raffle held at a neighborhood elementary school fundraiser and are given the choice between two different ways to be paid. You can either accept the money in a lump sum immediately or in a series of payments over time. If you choose the lump sum payout, you receive $2,800 today. If you choose to collect payments over time, you receive three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today. At an interest rate of 7% per year, the winner would be better off accepting the , since that choice has the greater present value. lump sum At an interest rate of 10% per year, the winner would be better off accepting payments over time , since it has the greater present value. A couple years after you win the raffle, you and your friend are back at the same event. This time, your friend gets lucky and wins the contest, and you both realize the payout schemes are the same as they were back when you won. They now face the decision between collecting their prize as a lump sum or as a series of payments over time. Based on your experience, which piece of advice will be most helpful to your friend? The lump sum is always better. The payments over time are always better. It will depend on the interest rate; advise her to get a calculator. None of these answers is good advice.2. Definition of a stock or bond A share of Dell stock represents: O A risk-free investment vehicle in the long run O A claim on Dell's assets that gives the purchaser a share of the Corporation O An IOU, or promise to pay, from Dell O A right to require that Dell pays all profits as dividends
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