Answer:
It will be a better offer the option B because it yield a higher net present value at the given rate.
B 88,457
A 86,755
C 85,000
Explanation:
We are going to compare the present value of each annuity at the cost of capital rate 7.5%
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
option A
C= couta, monthly payment 1,500
rate= 0.075 is an annual rate we divide by 12 to get the monthly rate
time = 6 years = 6*12 = 72 months
[tex]1,500 \times \frac{1-(1+0.075/12)^{-6*12} }{0.075/12} = PV\\[/tex]
option A PV = 86,754.78646
option B
C = 1,050
time = 10 years
same rate
[tex]1,050 \times \frac{1-(1+0.075/12)^{-10*12} }{0.075/12} = PV\\[/tex]
option B PV = 88,456.97984
option C = 85,000
It will be a better offer the option B because it yield a higher net present value at the given rate.
