Which choice has a greater present value if we assume a required rate of return of...
Which choice has a greater present value if we assume a required rate of return of 10%?
1: A lump sum cash flow today of $248.69
2: $100 cash flows occurring one, two, and three years from today
3: a single cash flow of $331 three years from today.
a. Choice 1
b. Choice 2
c. Choice 3
d. The choices all have equal present values at a discount rate of 10%.
Homework Answers
d. The choices all have equal present values at a discount rate of 10%.
PV are as follows
Option 1 = 248.69
Option 2 = 100/1.1 + 100/1.1^2 + 100/1.1^3 = 248.69
Option 3: 331/1.1^3 = 248.69
All are the same present values.
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