1. Congratulations! You have just won a lottery. The lottery company has offered you 2 schemes, as under. 1. You can receive a constant amount of $1,000 per year, starting 2 years from today, forever. 2. You can receive $1,500 at the end of year 2, and the amount each year after that declines @3.0% per year. (so year 3 will be 3% less than 1,500, and so on)

a. What is your required rate of return if you are indifferent between Options 1 and 2.

b. If the lottery company offered you a lump sum payment, today, what is the minimum amount of money you would need? Assume no taxes on lottery winnings.