(i) You are given the following options:
Alternative 1: Receive 10 years from now a single payment of 75,000.
Alternative 2: Receive 10,000 each year for 5 years, the first payment now.
Alternative 3: Receive 25,000 now and the same amount 5 years from now.
Suppose the interest rate is 5% per annum. Which option is the best?
In order to find out which option is the best, we calculate the present value of benefit from each alternative option available. This leads us to the answer that alternative 1 is the best option. The calculation along with detailed explanation is as follows:
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