You won the lottery, and can choose one of two (guaranteed) payments: Choice A pays $10,000 three

Question:

You won the lottery, and can choose one of two (guaranteed) payments: Choice A pays $10,000 three years from today; Choice B pays $1,000,000 exactly 100 years from now.

a. If the discount rate is 8%, which option should you choose?

b. If the discount rate is 4%, which option should you choose?

c. At what discount rate would you be indifferent between these two choices?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...