You just won a lottery that promises to pay you $1,400,000 exactly 20 years from today. A company approaches you today, offering cash in exchange for your winning lottery ticket.

a.What is the least you will sell your claim for if you can earn the following rates of return on similar-risk investments during the 20-year period? (1) 5% (2) 9% (3) 13%

b.Rework part a under the assumption that the $1,400,000 payment will be received in 25 rather than 20 years.

c. On the basis of your findings in parts a and b, discuss the effect of both the size of the rate of return and the time until receipt of payment on the present value of a future sum