Question

P 3-20 (similar to) Consider the following alternatives: i. $100 received in one year i. $210 received in five years ii. $310 received in 10 years a. Rank the alternatives from most valuable to least valuable if the interest rate is 12% per year b. What is your ranking if the interest rate is 1% per year? c, what is your ranking if the interest rate is 18% per year? Rank the alternatives from most valuable to least valuable if the interest rate is 12% per year. First calculate the present value (PV) of each alternative The P Of SI received in one year if the interest rate is 12% per year is $ (Round to the nearest cent)

Answer 1

Present Value calculation for all alternatives

Alternative	Amount received	No of years	Discount rate 12%	PV if Interest rate 12%	Discount rate 1%	PV if Interest rate 1%	Discount rate 18%	PV if Interest rate 18%
i	100	1	0.892857	89.28571	0.990099	99.0099	0.847458	84.74576
ii	210	5	0.567427	119.1596	0.951466	199.8078	0.437109	91.79294
iii	310	10	0.321973	99.8117	0.905287	280.639	0.191064	59.22998

Based on above table

Ranking if Interest rate is 12% per year - ii,iii,i

Ranking if Interest rate is 1% per year - iii,ii,i

Ranking if Interest rate is 18% per year - ii,ii,iii

PV of $100 received in one year if Interest rate is 12% is $89.29