Answer:
You just received an insurance settlement offer related to an accident you had three years ago. The best choice is Option C: $85,000 as a lump sum payment today.
Explanation:
Whereas in option A, which is $1,500 a month for 6 years,
you will accumulate a total of $1,500 × 72 = $108,000
For Option B, $1,025 a month for 10 years,
you will accumulate a total of $1,025 × 120 = $123,000
Option C which is $85,000 a a lump payment today is the best option because,
You can invest it at 7.5 percent earnings which will generate
$85,000 × 7.5/100 = $6,375 annually
with an annual earning of $6,375, you can accumulate the following in 6 years
$6,375 × 6 = $38,250
when you add it to the lump sum, you will get
$85,000 × $38,250 = $123,250
Furthermore,
with an annual earning of $6,375, you can accumulate the following in 10 years
$6,375 × 10 = $63,750
when you add it to the lump sum, you will get
$85,000 × $63,750 = $148,750
Therefore, with Option C, you will earn more.
You will get more than option A&B within 6 years and the cumulative sum for 10 years is far better than option B.
