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How much will you pay for each of the three investment options? see details?


You are about to select one of three risk-free investment opportunities, all of which will provide you with cash receipts totaling $150,000 over a ten-year period. The timing of the cash receipts differs, however, with each alternative. Option one will return $20,000 at the end of each of the first five years and $10,000 at the end of each of the next five years. Option two will return $10,000 at the end of each of the first five years and $20,000 at the end of each of the next five years. Option three will return $150,000 at the end of the tenth year. Your life expectancy is in excess of thirty years, you desire a before-tax return on your investment of ten percent, and the maximum investment you can afford is $100,000. 1) how much will u pay for each the 3 investment options? 2)if all 3 options were available at the exact prices you were willing to pay, which one of the 3 will you choose? why?

Assuming an internal rate of return + inflation 10%:

Cost of Options
Option 1 99,353
Option 2 84,983
Option 3 57,831

If all three options were available I would
There's a question missing in the question. Do you need this money to survice for the next 10 years.

If not I'd be jumping all over option 3. Your money is illiquid, but you'll have your 150,000 of cash flow, and you could invest the remaining 40,000+ of capital in other investment vehicles

If you needed the income stream I'd take option 2. You start off at a lower payout, but it increases (kinda compensating for inflation) in years 6+

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