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.

1. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each.
2. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment options?
3. Option A is preferable because it is an annuity due. Both options are of equal value given that they both provide $20,000 of income.
4. Option A is the better choice of the two given any positive rate of return.
5. Option B has a lower future value at year 5 than option A given a zero rate of return. Option B has a higher present value than option A given a positive rate of return.

Answer rating: 100% (QA)

Answer is 4 Option A is the better choice of the two give... View the full answer