Question
Your accountant offers you two investment options that each pay 5% interest, compounded annually. Both investments will return a total of $15,000. Investment A pays
Your accountant offers you two investment options that each pay 5% interest, compounded annually. Both investments will return a total of $15,000. Investment A pays $3,000 the first year followed by two annual payments of $6,000 each. Investment B pays three annual payments of $5,000 each. Given a positive discount rate, which statement is correct? Multiple Choice Option A has the higher future value at the end of year three. Option B is a perpetuity. Option A is an annuity. Option B has a higher present value at time zero. Both options are of equal value since they both provide $12,000 of income.
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