Question

Take a lottery's cash option if the lottery's indifference point > the rate you could earn. True or false.

Answer 1

One should be taking the lotteries cash option if hw believes that he is able to make a higher rate of return than receiving it in installment and annuities.

indifference point means the point at which the both options will have a similar probability of selection.

So the given statement is false because if one is not able to make a higher rate of return on the cash flows, then he should be not opting for the cash option as in this case, the indifference point is higher than the rate of return,one can earn on the cash investment.

So given statement is FALSE as he should not have opted for the cash option.