You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. 1.) Both options are of equal value since they both provide $12,000 of income. 2.) Option A has the higher future value at the end of Year 3. 3.) Option B has a higher present value at Time 0. 4.) Option B is a perpetuity. 5.) Option A is an annuity.

You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. 1.) Both options are of equal value since they both provide $12,000 of income. 2.) Option A has the higher future value at the end of Year 3. 3.) Option B has a higher present value at Time 0. 4.) Option B is a perpetuity. 5.) Option A is an annuity.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

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