A financial planner at Faisal Bank has offered you three possible options for receiving cash flows. You must choose the option that has the highest present value. (Option 1) PKR 1,000 now and another PKR 1,000 at the beginning of each of the 11 subsequent months during the remainder of the year, to be deposited in an account paying a 12 percent nominal annual rate, but compounded monthly (to be left on deposit for the year). (Option 2) PKR 12,750 at the end of the year (assume a 12 percent nominal interest rate with semiannual compounding). (Option 3) A payment scheme of 8 quarterly payments made over the next two years. The first payment of PKR 800 is to be made at the end of the current quarter. Payments will increase by 20 percent each quarter. The money is to be deposited in an account paying a 12 percent nominal annual rate, but compounded quarterly (to be left on deposit for the entire 2-year period).
A financial planner at Faisal Bank has offered you three possible options for receiving cash flows. You must choose the option that has the highest present value. (Option 1) PKR 1,000 now and another PKR 1,000 at the beginning of each of the 11 subsequent months during the remainder of the year, to be deposited in an account paying a 12 percent nominal annual rate, but compounded monthly (to be left on deposit for the year). (Option 2) PKR 12,750 at the end of the year (assume a 12 percent nominal interest rate with semiannual compounding). (Option 3) A payment scheme of 8 quarterly payments made over the next two years. The first payment of PKR 800 is to be made at the end of the current quarter. Payments will increase by 20 percent each quarter. The money is to be deposited in an account paying a 12 percent nominal annual rate, but compounded quarterly (to be left on deposit for the entire 2-year period).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![A financial planner at Faisal Bank has offered you three possible options for receiving cash flows.
You must choose the option that has the highest present value.
(Option 1) PKR 1,000 now and another PKR 1,000 at the beginning of each of the 11 subsequent
months during the remainder of the year, to be deposited in an account paying a 12 percent nominal
annual rate, but compounded monthly (to be left on deposit for the year).
(Option 2) PKR 12,750 at the end of the year (assume a 12 percent nominal interest rate with
semiannual compounding).
(Option 3) A payment scheme of 8 quarterly payments made over the next two years. The first
payment of PKR 800 is to be made at the end of the current quarter. Payments will increase by 20
percent each quarter. The money is to be deposited in an account paying a 12 percent nominal
annual rate, but compounded quarterly (to be left on deposit for the entire 2-year period).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5e6c3527-5cbc-4459-a187-52918ff9056a%2Ff572df10-5ae0-496e-abcb-6fdafe8e45f7%2Fd9jocpj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A financial planner at Faisal Bank has offered you three possible options for receiving cash flows.
You must choose the option that has the highest present value.
(Option 1) PKR 1,000 now and another PKR 1,000 at the beginning of each of the 11 subsequent
months during the remainder of the year, to be deposited in an account paying a 12 percent nominal
annual rate, but compounded monthly (to be left on deposit for the year).
(Option 2) PKR 12,750 at the end of the year (assume a 12 percent nominal interest rate with
semiannual compounding).
(Option 3) A payment scheme of 8 quarterly payments made over the next two years. The first
payment of PKR 800 is to be made at the end of the current quarter. Payments will increase by 20
percent each quarter. The money is to be deposited in an account paying a 12 percent nominal
annual rate, but compounded quarterly (to be left on deposit for the entire 2-year period).
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