Find what the value of the option is

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His second question comes up next. Currently your bank pays an interest rate of 7% on most long-term deposits. He has been named the beneficiary of a will. He needs your help in selecting one of the three options mentioned in the will.

Problem 1: As per the first option, he is entitled to a sum of $20,000 per year forever during his lifetime and his estate will receive such sums even beyond his death through all future generations. The value of this option is $

Problem 2: According to the second option, he (and his estate) will receive $10,000 next year (a year from today) and that sum will grow at 3% per year for ever. The value of this option is $

Problem 3: As per the third option, he will receive one-time lump-sum of $225,000 now. The value of this option is $

Reference no: EM132806536

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