Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 34, Problem 5P
To determine
The issue with partial loss imbursement.
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3. 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 $2,950
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 10% per year, the winner would be better off accepting the
present value.
since that choice has the greater
At an interest rate of 12% per year, the winner would be better off accepting
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…
If the discount rate on 3-month commercial paper is 4.9% while the yield on 3-month CDs is 5%, the real difference between
them in basis points (in terms of yield) is:
(You may need to look up how many basis points there are in a percentage point)
Select one:
a.
39
O b. 0.39
O c. 0.1
O d. 10
O e. 3.9
3. 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 $3,100
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
value.
At an interest rate of 9% per year, the winner would be better off accepting
since that choice has the greater present
O The lump sum is always better.
O The payments over time are always better.
O It will depend on the interest rate; advise her to get a calculator.
O None of these answers is good advice.
, since it has the greater present value.
A couple years after you win the raffle, you and your friend are back at the…
Chapter 34 Solutions
Economics (Irwin Economics)
Ch. 34 - Prob. 1DQCh. 34 - Prob. 2DQCh. 34 - Prob. 3DQCh. 34 - Prob. 4DQCh. 34 - Prob. 5DQCh. 34 - Prob. 6DQCh. 34 - Prob. 7DQCh. 34 - Prob. 8DQCh. 34 - Prob. 9DQCh. 34 - Prob. 10DQ
Ch. 34 - Prob. 11DQCh. 34 - Prob. 12DQCh. 34 - Prob. 13DQCh. 34 - Prob. 14DQCh. 34 - The three functions of money are: LO34.1 a....Ch. 34 - Prob. 2RQCh. 34 - Prob. 3RQCh. 34 - Prob. 4RQCh. 34 - Prob. 5RQCh. 34 - Prob. 6RQCh. 34 - Prob. 7RQCh. 34 - Prob. 8RQCh. 34 - Prob. 9RQCh. 34 - Prob. 1PCh. 34 - Prob. 2PCh. 34 - Prob. 3PCh. 34 - Prob. 4PCh. 34 - Prob. 5P
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