# Question

Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next 25 years (i.e., $1 million over 25 years) or as a lump sum of $500,000 paid immediately

a. If you expect to be able to earn 5% annually on your investments over the next 25 years, which alternative should you take? Why?

b. Would your decision in part (a) be altered if you could earn 7% rather than5 % on your investments over the next 25 years? Why?

c. At approximately what interest rate would you be indifferent when choosing between the two plans?

a. If you expect to be able to earn 5% annually on your investments over the next 25 years, which alternative should you take? Why?

b. Would your decision in part (a) be altered if you could earn 7% rather than5 % on your investments over the next 25 years? Why?

c. At approximately what interest rate would you be indifferent when choosing between the two plans?

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