If the interest rate is 6%,which of these investments would you prefer?
A) A single payment of $500 in year 3.
B) A payment of $40 a year for 20 years starting in one year's time.
C) A perpetuity of $30 a year starting in one year's time.
D) A payment of $342.17 today

Question

Quizplus · Accepted Answer

PV($500 in year 3) = 500 / 1.06³ = $419.81PV ($40 a year for 20 years) = 40(1 / 0.06 − 1 / (0.06 × 1.06²⁰)) = $458.80PV ($30 in perpetuity) = 30 / 0.06 = $500

If the Interest Rate Is 6%,which of These Investments Would