Your aunt recently won the lottery and has a difficult choice to make. She has come to you for help in deciding whether she should accept an immediate cash payment of $3.5 million, or instead take an annual payment of $200,000 for life, starting immediately. She is 50 years old. Currently the best interest rate you can get in a guaranteed investment certificate is 4%.
Required:
Assuming you do not expect interest rates to change, what should you advise your aunt to do if:
(a) She expects to live another 25 years?
(b) She expects to live another 30 years?