Business, 25.02.2020 02:00 allegra0103

You are comparing two investment options that each pay 6% interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. Both options are of equal value since they both provide $12,000 of income.

a. Option A has the higher future value at the end of year three.
b. Option B has a higher present value at time zero.
c. Option B is a perpetuity.
d. Option A is an annuity.

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