Value of an annuity versus a single amount:

Assume that you just won the state lottery. Your prize can be taken either in the form of $58,000

at the end of each of the next 30 years (that is, $1,740,000 over 30 years) or as a single amount of $1,057,000 paid immediately.

a. If you expect to earn 5% annually on your investments over the next 30 years, ignoring taxes and other considerations, which alternative should you take? Why?

b. Would your decision in part a change if you could earn 7% rather than 5% on your investments over the next 30 years? Why?

c. At approximately what interest rate would you be indifferent between the two options?