I have a question which is as follows:
You are offered the following options:
1) $11,000 today
2) $ 5,000 per year for the next five years
3) $ 4,000 per year for the next four years
4) $ 3,000 per year for the next three years
If the cost of capital is 10 %, u shud:
Choose 1, 2 , 3 or 4?
My ans is 2 because it has a higher present value but the book's ans is 3.

Books have been known to be wrong. Assuming you didn't make an error in typing this. Cause (2) is indeed the highest present value. I could tell that just by looking at it without doing any math. Less money per year for less years is obviously going to be a lower value. So that leaves it between 1 & 2, and even then I think it's fairly obvious since it's 5 years. But I figured it out for fun anyway and it's worth almost $19K.

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Originally Posted by zhao2vic

I have a question which is as follows:
U r offered the following options:
1) $11,000 today
2) $ 5,000 per year for the next five years
3) $ 4,000 per year for the next four years
4) $ 3,000 per year for the next three years
If the cost of capital is 10 %, u shud:
Choose 1, 2 , 3 or 4?
My ans is 2 because it has a higher present value but the book's ans is 3.

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Haha, thks! I need someone like you to confirm.