Consider the two investments shown in the table. Find the present value of each at Year 0 assuming an interest rate of 5%. What is the percentage difference in the present values (with Investment 1 as the base of the percentage)? $$\begin{array} { | c | c | c | }
\hline \text { Year } & \text { Investment \#1 } & \text { Investment \#2 } \
\hline 0 & \$ 0 & \$ 0 \
\hline 1 & \$ 100 & \$ 100 \
\hline 2 & \$ 100 & \$ 1,100 \
\hline 3 & \$ 1,100 & \$ 0 \
\hline
\end{array}$$
A)-3.8%
B)-2.6%
C)3.5%
D)4.3%
E)-4%

Question

Consider the two investments shown in the table. Find the present value of each at Year 0 assuming an interest rate of 5%. What is the percentage difference in the present values (with Investment 1 as the base of the percentage)? $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \text { Investment \#1 } & \text { Investment \#2 } \
\hline 0 & \$ 0 & \$ 0 \
\hline 1 & \$ 100 & \$ 100 \
\hline 2 & \$ 100 & \$ 1,100 \
\hline 3 & \$ 1,100 & \$ 0 \
\hline
\end{array}$$
A)-3.8%
B)-2.6%
C)3.5%
D)4.3%
E)-4%

Quizplus · Accepted Answer

The present value of Investment 1 is $100/(1.05) + $100/(1.05)^2 + $1,100/(1.05)^3 = $95.24 + $90.70 + $952.38 = $1,138.32. The present value of Investment 2 is $100/(1.05) + $1,100/(1.05)^2 = $95.24 + $952.38 = $1,047.62. The percentage difference in the present values is (1,138.32 - 1,047.62)/1,138.32 * 100% = 3.8%.

Consider the Two Investments Shown in the Table A)-38% B)-2

Consider the Two Investments Shown in the Table A)-38%
B)-2