You are offered two possible investments by a broker.
Investment A can be purchased for $20,000 and will pay you in return $3,000 per year for 20 years (starting a year from now).
Investment B can also be purchased for $20,000 and will pay you in return $2,750 per year for 30 years (also starting a year from now).
The broker argues that investment B is better since “you get a smaller yearly payment, but you will receive payments for 10 more years”. You want to earn the highest overall return on your initial investment, so… which one should you choose?
A. The first one
B. The second one
C. You are totally indifferent between the two, they provide the same return
D. You need more information to make this choice.