Question 2 You are considering investing in two different investment options. The first option offers no return for the first three years, but afterward it offers to pay you $20,000 per year for four years. The second option offers to pay you $20,000 per year for three years and $30,000 in the fourth year. All payments are made at year-end. If a discount rate of 8% per annum is assumed, determine by using the present value the option that offers you a higher return.
Question 2 You are considering investing in two different investment options. The first option offers no return for the first three years, but afterward it offers to pay you $20,000 per year for four years. The second option offers to pay you $20,000 per year for three years and $30,000 in the fourth year. All payments are made at year-end. If a discount rate of 8% per annum is assumed, determine by using the present value the option that offers you a higher return.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 2
You are considering investing in two different investment options. The first option offers no
return for the first three years, but afterward it offers to pay you $20,000 per year for four years.
The second option offers to pay you $20,000 per year for three years and $30,000 in the fourth
year. All payments are made at year-end. If a discount rate of 8% per annum is assumed,
determine by using the present value the option that offers you a higher return.
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