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If the rate of discount is $20$ percent,

a$.$ Would you rather receive $$100$ today or $$120$ in one year?

b$.$ Would you rather receive $$205$ today or $$240$ in one year?

c$.$ Would you rather receive $$500$ in one year or $$610$ in two years?

$2$ Suppose that you are considering the purchase of a security that has the following timeline of payments:

a$.$ How much would you be willing to pay for this security if the market interest rate is $6$ percent?

b$.$ Suppose that you have just purchased the security, and suddenly the market interest rate falls to $5$ percent. What is the security worth?

c$.$ Suppose that one year has elapsed, you have received the first payment of $$600,$ and the market interest rate is still $5$ percent. How much would

another investor be willing to pay for your security?

d$.$ Suppose that two years have elapsed since you purchased the security, and you have received the first two payments of $$600$ each. Now suppose

that the market interest rate suddenly jumps to $10$ percent. How much would another investor be willing to pay for your security?

You have just won a $$25$ million lottery prize, which pays you $$1$ million $($tax$-$free$)$ every year for the next $25$ years. Have you really won $$25$ million?

What have you won if the rate of discount is $5$ percent? $($Note: You will get your first $$1$ million payment today and your last $$1$ million payment $24$

years from now.$)$

Submit below in a word document, clearly identify your answers and work.