Mr. Ahmed has just retired from a government job and he has received a handsome amount as his gratuity. He has a plan to invest his money received from gratuity for which he is in search of a profitable investment option. One of his friends has suggested him three investment options considering his aim of investment. Mr. Ahmed is not aware of investment dynamics (the risk and return) therefore he needs help from someone to choose among the three available investment options. Being a student of financial management you are required to help Mr. Ahmed in choosing the best option as an investment for 10 years based on the principle of “time value of money”. Following is the information available about three investment options:
Option 1: Deposit an amount of Rs. 120,000 at beginning of each year for the next 10 years in a saving account at ABC bank which provides 12% interest rate compounded annually.
Option 2: Deposit an amount of Rs. 50,000 at end of each year for the next 10 years in saving account of M Bank which provides 10% interest rate compounded quarterly.
Option 3: Deposit an amount of Rs. 100,000 at end of each year for the next 10 years in a saving account at N&P bank which provides 10% interest rate compounded semi-annually.
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