Suppose that an individual wins a lottery that offers her two ways of collecting the payment. She can either take $3,000 right now or take $3,100 one year from now. The safest interest rate in the economy is on Treasury securities that yield 5 percent interest per year.
A. Which payment should the lottery winner choose under these conditions? Justify your answer.
B. If the interest rate is 3 percent instead of 5 percent, which payment should the lottery winner choose?
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