Suppose you have a choice between receiving a lump-sum payment of $10,000 today or four annual payments of $2,750 (with the first payment today).Of the following,which is the lowest annual interest rate at which you would prefer the lump-sum payment over the four annual payments?
A)2%
B)5%
C)7%
D)10%

Question

Suppose you have a choice between receiving a lump-sum payment of $10,000 today or four annual payments of $2,750 (with the first payment today).Of the following,which is the lowest annual interest rate at which you would prefer the lump-sum payment over the four annual payments?
A)2%
B)​5%
C)​7%
D)​10%

Quizplus · Accepted Answer

The present value of the four annual payments at a 7% interest rate is less than $10,000, making the lump-sum payment more favorable.

Suppose You Have a Choice Between Receiving a Lump-Sum Payment