Suppose you win a small lottery and have the choice of two ways to be paid: You can accept the money in a lump sum or in a series of payments over time. If you pick the lump sum, you get $2,750 today. If you pick payments over time, you get three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today.
1) At an interest rate of 6% per year, the winner would be better off accepting the (lump sum or payments over time), since it has the greater present value.
2) At an interest rate of 9% per year, the winner would be better off accepting (lump sum or payments over time), since it has the greater present value.