You have been offered a choice ofperpetuities:

• The first makes payments to the holder of $1,000 per year, and based upon the credit rating of the issuer you believe that an 8% return is appropriate for this investment.
• The second makes payments of $1,250 per year, but because the issuer is riskier (they have weaker financial statements) you would require a rate of 10% per year.

Which of these two should you prefer?

I should prefer the first, because it is less risky.

I should prefer the second, because it has the higher payments and higher rate.

I should be indifferent to these two, because the value today is the same.

I should prefer the second, because it has the higher FUTURE VALUE.

It is not possible to tell which is better without knowing how many payments are involved.