Marty has just won the National Magazine Sweepstakes.
He has two options for receiving his prize. The first option is to accept a $125,000 cash payment today. The second option is to receive $15,000 at the end of each of the next 14 years and a $20,000 lump sum payment in the fifteenth year. Marty can invest money at a 6% rate.
a. Which option should Marty choose to receive his winnings? Why?
b. If Marty could invest money at 9%, which option should he choose? Why?