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Seth just won a law suit and has been given the choice of two payout options: Option #1: He can receive $50,000 every six months

Seth just won a law suit and has been given the choice of two payout options:

  • Option #1: He can receive $50,000 every six months for ten years.
  • Option #2: He can wait and receive $56,500 every six months for ten years with the first payment coming one and a half years from now.

The appropriate discount rate is 13 percent compounded semiannually.

What is the present value of Option #1?

What is the present value of Option #2?

Which option should be chosen?

Why should that particular option be chosen?

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