Smith agrees to pay Jones $13,207 after ten years in exchange for Jones paying Smith $1,000 at the beginning of each year for ten years. Just after the 6th payment, Jones decides he cannot continue payments and offers Smith the following three alternatives:

1. Stop payments. Smith pays Jones $8,500 at the end of the original ten-year period.

2. Stop payments. Smith pays Jones $7,000 now and closes the transaction.

3. Continue payments, but at $500 per year. Smith pays Jones $10,500 at the end of the original 10-year period.

Which if any of the alternatives could Smith accept if he is to pay no more than the effective rate of interest agreed upon initially?