Question: Wang Ming just won the American Powerball (lottery) and she must choose among three award options. She can elect to receive a lump sum today of $61 million, to receive 10 end-of-year payments of $9.5 million, or to receive 30 end-of-year payments of $5.5 million. (20 marks)
- If she thinks she can earn 7% annually, which should she choose? (5 marks)
- If she expects to earn 8% anuually, which is he best choice? (5 marks)
- If she expects to earn 9% annually, which option would you recommend? (5 marks)
- Explain how interest rates influence the optimal choice. (5 marks)