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A state lottery makes the following annoucement: Fredrick Carbuncle has just won $ 1 0 0 million! We'll pay Fredrick $ 1 0 million each
A state lottery makes the following annoucement: "Fredrick Carbuncle has just won $ million! We'll pay Fredrick $ million each year for the next years!"
a Assuming the interest rate is strictly positive, in present value terms, Fredrick has won $ million.
b Many state lotteries allow winners to choose a single payment instead of series of annual payments. "We'll offer you the present value of your annual payments, Fredrick," the lottery commisioner says. "And because we're feeling generous, we'll use a really high interest rate when we calculate how much that prize will be Congratulations, Fred!"
The lottery commissioner's professions of generosity are genuine. True or False
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