[zhao2vic]

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.

[morgaine300]

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.

[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.

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