Question

You have $100,000 in an account that earns 2% APR (Compounded monthly)
You want to earn a higher rate of return and therefore are considering two alternative investments. You will put your $100,000 in one of the two new accounts.
Investment 1 will pay you $860 per month for starting next month 120 months.
Investment 2 will pay you $2,600 per month for starting next month 40 months.

Which account should you choose and how much does it increase your net worth?

Choose Investment 2 it increases your net worth by $528

Choose Investment 1 it increases your net worth by $544

Choose Investment 2 it increases your net worth by $508

Choose Investment 2 it increases your net worth by $547

Answer 1

		INVESTMENT 1
	Rate	Monthly interest rate=(2/12)%	0.1667%
	Nper	Number of months	120
	Pmt	Monthly payment	$860
	PV	Present Value of Payments	$93,464.59	(Using excel PV function with Rate=0.1667%, Nper=120, Pmt=-860)
		INVESTMENT 2
	Rate	Monthly interest rate=(2/12)%	0.1667%
	Nper	Number of months	40
	Pmt	Monthly payment	$2,600
	PV	Present Value of Payments	$100,528.11	(Using excel PV function with Rate=0.1667%, Nper=40, Pmt=-2600)
		ANSWER:
		Choose Investment 2 it increases your net worth by $528