Shawna is considering one of two options. The first option is to receive $1,800 per month for the first 5 years and $2,000 per month for the last 5 years based on an interest rate of 6.5% compounded monthly. The second option is to receive $145,000 now. Determine which option should be chosen to maximize benefits now.

A) First option, as it provides benefit of $165,915.26 compared to $145,000 for second
B) First option, as it provides benefit of $155,915.16 compared to $145,000 for second
C) First option, as it provides benefit of $152,915.16 compared to $145,000 for second
D) First option, as it provides benefit of $150,915.16 compared to $145,000 for second
E) First option, as it provides benefit of $145,915.16 compared to $145,000 for second

Question

Muzahedul Raton · Accepted Answer

Final Answer : A, Explanation :  The first option's total benefit is calculated by finding the present value of the annuity payments for both the $1,800 per month for the first 5 years and the $2,000 per month for the last 5 years, using the given interest rate of 6.5% compounded monthly. This calculation shows that the total present value of the first option exceeds $145,000, making it the better choice.

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