You are comparing two investment options.The cost to invest in either option is the same today.Both options will provide you with $20,000 of income.Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each.Option B pays five annual payments of $4,000 each.Which one of the following statements is correct given these two investment options?

Question

Quizplus · Accepted Answer

Option A provides a larger payment in the first year ($8,000) compared to option B ($4,000), which is beneficial in terms of time value of money. This is because earlier payments can be invested and earn returns, increasing the overall value of the investment. Additionally, option A has a larger total payment amount ($23,000) compared to option B ($20,000), which further supports the idea that option A is the better choice. Therefore, option A is the better choice given any positive rate of return.

You Are Comparing Two Investment Options