Asked by Taylor Ingram on Jun 21, 2024
Verified
Which one of the following would have the greatest present value, assuming a positive discount rate?
A) $1,000 today plus $100 a month for 2 years.
B) $1,000 today plus $200 a month for a year.
C) $1,000 today plus $400 a month for six months.
D) $2,200 today plus $200 a month for six months.
E) $2,200 today plus $100 a month for a year.
Present Value
The equivalent value today of cash flows or a sum of money anticipated in the future, using a predetermined return rate.
- Calculate the present value of immediate and deferred cash flows to compare financial options.
Verified Answer
JP
Jonathan PierreJun 23, 2024
Final Answer :
D
Explanation :
Option D offers the highest initial amount ($2,200) and still provides a significant monthly payment ($200 for six months), which combined, would likely result in the greatest present value when compared to the other options, assuming a positive discount rate.
Learning Objectives
- Calculate the present value of immediate and deferred cash flows to compare financial options.