Answer:
if the interest rate is 5%, I would choose security (b), but if the interest is 10%, then security (a) is a better option
Explanation:
security a:
the present value (5%) = $10,000 x 7.7217 (PV annuity factor, 5%, 10 years) = $77,217
the present value (10%) = $10,000 x 6.1446 (PV annuity factor, 10%, 10 years) = $61,446
security b:
terminal value in 10 years, 5% = $10,000 / 5% = $200,000
present value = $200,000 / 1.05¹⁰ = $122,782.65
terminal value in 10 years, 10% = $10,000 / 10% = $100,000
present value = $100,000 / 1.1¹⁰ = $38,554.33
