You have a choice among three options.Option 1: receive $900 immediately.Option 2: receive $1,200 one year from now.Option 3: receive $2,000 five years from now.The interest rate is 15% per year.Rank these three options from highest present value to lowest present value.
A)Option 1; Option 2; Option 3
B)Option 3; Option 2; Option 1
C)Option 2; Option 3; Option 1
D)Option 3; Option 1; Option 2

Question

Quizplus · Accepted Answer

First, we need to calculate the present value of each option, given the interest rate of 15% per year:

Option 1: $900
Option 2: $1,200/(1+0.15) = $1,043
Option 3: $2,000/(1+0.15)^5 = $952

Therefore, the ranking from highest present value to lowest present value is: Option 2, Option 3, Option 1.

The best choice would be Option 2, since it has the highest present value among the three options.

You Have a Choice Among Three Options