You recently filed suit against a company. Today, you received three settlement options as follows:
Option A: $10,000 on the first day of each year for 25 years
Option B: $880 on the first day of each month for 25 years
Option C: $119,830 as a lump sum payment today
You can earn 7.5% on your investments. You do not care if you personally receive the funds or if they are paid to your heirs should you die within the next 25 years. Which one of the following statements is correct given this information?
A) Option C is clearly the best choice since you can earn 7.5% on the entire lump sum starting immediately.
B) Option B is clearly the best choice since it offers the largest number of payments.
C) Option A is clearly the best choice since it has by far the largest future value.
D) Option B is clearly the best choice since it has by far the largest present value.
E) You are relatively indifferent to the three options as they are all approximately equal in value to you.
Correct Answer:
Verified
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