Suppose you win the Powerball lottery on January 1, 2015. You can choose to receive the entire amount of $400 million either as a lump sum on January 1, 2015 or you can receive four equal payments of $102 million paid on January 1, 2015, 2016, 2017, and 2018. Assume your lottery earnings are not taxed.
a. How would you decide which option to choose? Assume the interest rate to be 2 percent.
b. Instead suppose that the interest rate is 1 percent. Would your answer to part (a) change?