Carlos won the lottery; however, the lottery company gave her the following two options to receive her prize money:

• Option (a): $11,000 in three months and $14,000 in nine months.
• Option (b): $7,000 immediately and $18,000 in twelve months.

Assume that money earns 6.25% p.a. simple interest and use today as the focal date.

a. What was the equivalent value of the payments under option (a) at the focal date?

Round to the nearest cent

b. What was the equivalent value of the payments under option (b) at the focal date?

Round to the nearest cent

c. Which option would be economically better for Carlos and by how much?

a. Option (a)

b. Option (b)