Chris Has Three Options for Settling an Insurance Claim

question 47

Multiple Choice

Chris has three options for settling an insurance claim. Option A will provide $1,500 a month for 6 years. Option B will pay $1,025 a month for 10 years. Option C offers $85,000 as a lump sum payment today. The applicable discount rate is 6.8 percent, compounded monthly. Which option should Chris select, and why, if he is only concerned with the financial aspects of the offers? 

• A) Option A: It provides the largest monthly payment. 
• B) Option B: It pays the largest total amount. 
• C) Option C: It is all paid today. 
• D) Option B: It pays the greatest number of payments. 
• E) Option B: It has the largest value today. 

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