1. Recently, a lucky person won the lottery. The lottery winnings were reported to be $85.5 million. In reality, the winner got a choice of $2.85 million per year for 30 years or $46 million today.

1. a) Explain briefly why winning $2.85 million per year for 30 years is not equivalent to winning $85.5 million. You may use simple calculations (with assumptions such as an interest rate of 3% p.a.) to explain your answer.

2. b) The evening news interviewed a group of people the day after the winner was announced. When asked, most of them responded that, if they were the lucky winner, they would take the $46 million up-front payment. Suppose you were that lucky winner, how would you decide between the annual installments or the up-front payment?