a. The state of Nevada recently had the innovative idea of funding renewable energy projects by using a state lottery (hypothetically, but maybe not a bad idea). You just found out your brother hit the $5 million jackpot in this week's "Renewable Energy" lottery. He will receive his money in annual payments of $250,000 for 20 years, beginning next year. If the discount rate is 6%, what is the present value of your brother's winnings?

b. If the Nevada Lottery Commission offered to give your brother $3 million in a lump sum at the end of 5 years as an alternative to waiting for his 20-year payment stream ($250,000 per year from part a), what should you advise him to do? What if they offered him $4 million? At what offer would he be indifferent?