You Are Comparing Two Investment Options

question 25

Multiple Choice

You are comparing two investment options.The cost to invest in either option is the same today.Both options will provide you with $20,000 of income.Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each.Option B pays five 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 $20,000 of income.
• B)Option A is the better choice of the two given any positive rate of return.
• C)Option B has a higher present value than option A given a positive rate of return.
• D)Option B has a lower future value at year 5 than option A given a zero rate of return.
• E)Option A is preferable because it is an annuity due.

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Definitions:

Amenorrhea

The absence of menstruation in someone of reproductive age, which can be a symptom of various medical conditions or the result of natural causes like pregnancy.

Premenstrual Syndrome (PMS)

A collection of physical and emotional symptoms that occur in the one to two weeks before a woman's period.

Toxic Shock Syndrome (TSS)

A rare, potentially fatal condition caused by bacterial toxins, often associated with tampon use or nasal packing.

Secondary Amenorrhea

The cessation of menstrual periods for three months or more after regular menstrual cycles have been established, not due to pregnancy, menopause, or other natural reasons.