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.
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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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
3.) Option B has a higher
4.) Option B is a perpetuity.
5.) Option A is an
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