Answer:
The first option, paying $2,000 per month for the next fifteen years (180 payments) with the first being made one month from now should be taken.
Explanation:
* Calculation of present value of the first option, paying $2,000 per month for the next fifteen years (180 payments) with the first being made one month from now:
We have: Discounting periods: 180; Discount rate = 6/12 = 0.5%; Monthly payment = 2,000
=> Present value = (2,000/0.5%) * [1 - 1.005^(-180)] = $237,007.3
* Calculation of present value of the second option, paying $785,000 twenty years from today.
We have: Effective rate = (1+0.5%)^12 - 1 = 6.168%
=> Present value = 785,000/(1+6.168%)^20 = $237,135.7
So, as the present value of option on is lower, it should be taken