You just received an insurance settlement offer related to an accident you had s

Question

You just received an insurance settlement offer related to an accident you had six years ago. The offer gives you a choice of one of the following three offers:

   Option A: $1,565 a month for 72 months
   Option B: $1,012 a month for 10 years
   Option C: $100,000 as a lump sum payment today

You can earn 7.5 percent on your investments. You do not care if you personally receive the funds or if they are paid to your heirs should you die within the settlement period. Which one of the following statements is correct given this information?

A)Option A

B)Option B because it pays largest amount

C)Option C

D) Option B because you will receive the most payments

E)You are indifferent because all options are equal in value

Explanation / Answer

Present Value of Option C = $100,000

Present Value of Option B = $91141

Present Value of Option A = $ 86185

Hence, Option C is the best

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