You are faced with two different investment options.The first investment provides cash flows of $1,500 per year for 10 years.The second investment provides cash flows of $3,000 for 5 years.For both investments,cash flows occur at the end of each year.Which of these has the higher present value with a discount rate of 5%?
A) The 5-year investment
B) They have the same PV.
C) The 10-year investment

Question

Quizplus · Accepted Answer

PV = PMT × 11ea7fdb_fc1b_ff50_a768_ff974723b5b5_TB2902_11 11ea7fdb_fc1b_ff51_a768_a72090407f24_TB2902_11 = 1,500 × 11ea7fdb_fc1c_2662_a768_5d06c5421065_TB2902_11 = $11,582.60
Using a financial calculator:
N = 10, I/Y = 5, PMT = -1,500, FV = 0, cpt PV = $11,582.60 11ea7fdb_fc1c_2663_a768_7fcf715eb5ff_TB2902_11 = 3,000 × 11ea7fdb_fc1c_2664_a768_ad7bb67bce61_TB2902_11 = $12,988.43
Using a financial calculator:
N = 5, I/Y = 5, PMT = -3,000, FV = 0, cpt PV = $12,988.43

You Are Faced with Two Different Investment Options