Anne Jones checked her lottery ticket once again. The numbers matched; she had won the $10,000,000 grand prize. The lottery provided two options for payment of the grand prize. First, the winner could take $1,000,000 immediately, with the remainder payable in $1,000,000 instalments over nine years, starting one year from now. The alternative payment option was an immediate lump sum payment of $7,000,000.

Anne believes that she can earn a rate of return of 7 per cent on any money she receives.

a) Which payment option would you suggest that Anne select?

b) What Interest rate would make these two options equivalent?