Question
Out of nowhere, Alex get an email stating that he won a lottery that will give him a monthly payment of $3,000 for five years.
Out of nowhere, Alex get an email stating that he won a lottery that will give him a monthly payment of $3,000 for five years. Currently, the average rate of return on the bank deposits is 1 percent per month. There are two options that Alex can choose to disburse the prize, described as follow:
- Option A : it will be paid on the last day of each month, or
- Option B : it will be paid at the beginning of each month
If Alex wants to know the present value of his prize, which one of the following statements is incorrect concerning these two options?
Select one:
a. The present value of option A can be calculated using ordinary annuity
b. The present value of option A can be calculated using annuity due
c. Option A has a smaller present value than option B
d. Option B has a higher present value than option A
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