Suppose you win a raffle held at a county fair 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 $2,850 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 8% per year, the winner would be better off accepting the _______ (lump sum or payments over time) , since that choice has the greater present value.

At an interest rate of 11% per year, the winner would be better off accepting _______ (the lump sum or the payments over time) , 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 collecting their prize as a lump sum or as a series of payments over time. Based on your experience, which piece of advice will be most helpful to your friend?

- The lump sum is always better.

- The payments over time are always better.

- It will depend on the interest rate; advise her to get a calculator.

- None of these answers is good advice.