a) If you knew Uncle was going to die in 5 years, which option would you choose? How much money would you inherit from Option A? From Option B? b) If you knew Uncle was going to die in 20 years, which option would you choose? How much money would you inherit from Option A? From Option B?
Your evil step-uncle wishes to leave you some of his wealth. You must choose how he wills the money to you.
OptionA: He ‘gives’ you $1000.00. He will invest the money on your behalf, at 7.5% per annum, compounded monthly. He will add $1000 to the account at the end of each year. At his death the accumulated sum will pass to you.
Option B: He ‘gives’ you $2000.00 per year until he dies. This money is not invested, and the accumulated sum will pass to you at his death.
a) If you knew Uncle was going to die in 5 years, which option would you choose? How much money would you inherit from Option A? From Option B?
b) If you knew Uncle was going to die in 20 years, which option would you choose? How much money would you inherit from Option A? From Option B?
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