You Are Comparing Two Investment Options That Each Pay 5

question 108

Multiple Choice

You are comparing two investment options that each pay 5 percent interest,compounded annually.Both options will provide you with $12,000 of income.Option A pays three annual payments starting with $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?

• A) Both options are of equal value given that they both provide $12,000 of income.
• B) Option A has the higher future value at the end of year three.
• C) Option B has a higher present value at time zero than does option A.
• D) Option B is a perpetuity.
• E) Option A is an annuity.

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Definitions:

Type A Personality

A personality type characterized by high levels of competitiveness, self-imposed stress, impatience, aggressiveness, and a constant sense of urgency.

Type C Personality

A personality style characterized by difficulty expressing emotions, a high level of detail orientation, and a tendency towards introversion.

Counterdependent Personality

A personality trait characterized by a strong resistance to depending on others or forming close relationships, often as a defensive mechanism.

Transformational Coping

A method of managing stress and psychological strain by altering one’s perspective on the stressor, often resulting in personal growth or change.