You are comparing two investment options,each of which will provide $15,000 of total income.Option A pays five annual payments starting with $5,000 the first year followed by four annual payments of $2,500 each.Option B pays five annual payments of $3,000 each.Which one of the following statements is correct given these two investment options?
A)Both options are of equal value today.
B)Given a positive rate of return,Option A is worth more today than Option B.
C)Option B has a higher present value than Option A given a positive rate of return.
D)Option B has a lower present value than Option A given a zero rate of return.
E)Option A is preferable because it is an annuity due.

Question

Quizplus · Accepted Answer

Given a positive rate of return, Option A is worth more today than Option B because it provides a larger sum of money upfront ($5,000 in the first year), which means its cash flows are discounted less than the equal annual payments of Option B when applying a positive discount rate. This results in a higher present value for Option A compared to Option B.

You Are Comparing Two Investment Options,each of Which Will Provide