Alison has $5000 to invest and is trying to decide between two investment opportunities. One investment offers her future cash flows of $2000 for each of the next five years. Another investment offers her future cash flows of $5000 in year five and $7500 in year six. In order for her to compare the future cash flows of these two investments, what will she need to calculate?
A) annuity value
B) average annual payout
C) common payout value
D) present value

Question

Quizplus · Accepted Answer

Alison will need to calculate the present value of both investment opportunities in order to compare their future cash flows. This will allow her to determine which investment is worth more in today's dollars and make an informed decision. Therefore, the correct answer is D, present value. The other options (annuity value, average annual payout, and common payout value) are not relevant for comparing the future cash flows of these two investments.

Alison Has $5000 to Invest and Is Trying to Decide