You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options...

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. which option has a higer preswnr value? show the calculations of the present value for both options.

Expert Solution

Statement showing Cash flows			Option A		Option B
Particulars	Time	PVf 6%	Amount	PV
Cash inflows	1.00	0.9434	2,000.00	1,886.79	4,000.00	3,773.58
Cash inflows	2.00	0.8900	5,000.00	4,449.98	4,000.00	3,559.99
Cash inflows	3.00	0.8396	5,000.00	4,198.10	4,000.00	3,358.48
PV of Cash Inflows =PVCI				10,534.87		10,692.05

Option B has higher present Value

jeff jeffy answered 1 year ago

Calculate the effective annual rate for each. 6 percent compounded annually. % 6 percent compounded semiannually....

Calculate the effective annual rate for each. 6 percent compounded annually. % 6 percent compounded semiannually. % 6 percent compounded quarterly. % 6 percent compounded monthly. %

you have two options of investing $500. the first earns 5% interest compounded annually, and the...

you have two options of investing $500. the first earns 5% interest compounded annually, and the second earns 7% simple interest. Which option do you choose if you want to cash out the investment in 5 years? Why? Which option do you choose if you want to cash out the investment in 10 years? Why? Which option do you choose if you want to cash out the investment in 20 years? Why?

Allyson Gomez invests $8,000 today in an investment that earns 6 percent per year (compounded annually)...

Allyson Gomez invests $8,000 today in an investment that earns 6 percent per year (compounded annually) for 25 years. The average inflation rate is expected to be 1.8 percent per year. She will have much more than $8,000 in 25 years BUT what would this future amount be if expressed in today’s dollars? a. $34,335 b. $21,981 c. $52,306 d. $12,496 e. $21,839

If an investment of $45,000 is earning an interest rate of 4.00%, compounded annually, then it...

If an investment of $45,000 is earning an interest rate of 4.00%, compounded annually, then it will take ______ for this investment to reach a value of $53,686.18—assuming that no additional deposits or withdrawals are made during this time. Which of the following statements is true—assuming that no additional deposits or withdrawals are made? A) An investment of $50 at an annual rate of 5% will return a higher value in five years than $25 invested at an annual rate...

Question 23 You own two bonds. Both bonds pay annual interest, have 6 percent annual coupons,...

Question 23 You own two bonds. Both bonds pay annual interest, have 6 percent annual coupons, $1,000 face values, and currently have 6 percent yields to maturity. Bond A has 12 years to maturity and Bond B has 4 years to maturity. If the market rate of interest rises unexpectedly to 7 percent, Bond _____ will be the most volatile with a price decrease of _____ percent. Group of answer choices A; 7.94 B; 3.39 B; 4.51 A; 5.73 A;...

On your ninth birthday, you received $300 which you invested at 5 percent interest, compounded annually....

On your ninth birthday, you received $300 which you invested at 5 percent interest, compounded annually. Your investment is now worth $756. How old are you today?

You buy a 2-year, 8 percent savings certificate for $1,000. If interest is compounded annually, what...

You buy a 2-year, 8 percent savings certificate for $1,000. If interest is compounded annually, what will be its value at maturity? a. $1,067.43 b. $1,166.40 c. $1,201.03 d. $1,396.57 e. $1,466.33

You are saving $100 for two years with 10% interest rate (annually compounded). a. What is...

You are saving $100 for two years with 10% interest rate (annually compounded). a. What is FV at the end of year 2?(and show the equation) b. What is the interest earned on interest? (and show the equation)

RM60,000 is borrowed for 12 years at 5% compounded annually. The borrower does not pay interest...

RM60,000 is borrowed for 12 years at 5% compounded annually. The borrower does not pay interest currently and will pay all accrued interest at the end of 12 years together with the principal. (a) Find the amount annual sinking fund deposit necessary to liquidate the loan at the end of 12 years if the sinking fund earns 3% yearly compounding and the borrower make first payment immediately. (b) Prepared a sinking fund schedule. Ans: (a) RM 7,371.25

Given an interest rate of 6% per year compounded annually, what is the value at the...

Given an interest rate of 6% per year compounded annually, what is the value at the date t = 0 of a perpetual stream of $2,000 annual payments that begin at date t = 10? (approx. to nearest integer value) Select one: a. $19730 b. $20914 c. $18613 d. $18000

Question