incent Lee's godfather, Linton Chu, decided to make him a gift of $$27,000.$ Chu ave Lee the option to receive the cash in any one of the following three patterns:

One thousand dollars at the end of each of the first three years, starting one year from now; $$3,000$ at the end of each of the next three years; and $$5,000$ at the end of each of the last three years. Chu suggests that this arrangement might be preferable because Lee is young and will need more money as he grows older, not only because he will learn to spend more but also because inflation will. increase his cost of living.

Three thousand dollars at the end of each of the next nine years, starting one year from now. Chu pointed out that this option offers Lee the advantage of a steady cash flow.

Five thousand dollars at the end of each of the first three years, starting one year from now; $$3,000$ at the end of each of the next three years; and $$1,000$ at the end of each of the last three years. Chu points out that he would not recommend this option to Lee because it would give him an excess of cash flow during the first three years that would be invested at a rate of interest lower than he $($Chu$)$ could earn. Lee had told Chu that he would invest all this money in San Francisco at $6\%$ compounded annually; Chu had responded that he invests his money at $10\%$ compounded annually in a Hong Kong bank.

After discussing these alternatives with several philosophy students at Golden hark University, Lee said to Chu: "All three options are the same; obviously I hall receive an average of $$3,000$ at the end of each of the nine years, so it makes o difference. I'll take the first option." Chu responded, "I am happy to know that ou are in school; there is much to learn."

$1.$structions

Did Vincent Lee make the right decision? Why?

What is the present value of each option at $6\%$ interest compounded ann...l$1.$

c Briefly evaluate the observations made by Linton Chu relative to each of the three options he presented to Vincent Lee.