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: A: $1,565 a month for 72 months B: $1,012 a month for 10 years 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?

Answer 1

answer:

Step-by-step explanation:

Option A. $1565 for 72months

Then the total is $112,680

Option B. $1012 for a month for 10 years,

10years is equivalent to 120months

Therefore, the total income is 1012×120

$121,440.

Option 3.

$100,000 once payment.

All the information is correct.

But,

Since the individual did not care if he receives the fund or it is transfer to his heir, so we can ignore the third option of collecting $100000 lump sum.

Also, since he is also ready to wait and he is indifferent about who earns the insurance settlement so he can as well wait and ignore the 72months.

So he can go for the second option because it pays the largest amount and he will receive the most payments.

He will receive $121,440 if he waits for ten years.