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Michelle is thinking about two different investments options each for 4 years and interest rate is...

Michelle is thinking about two different investments options each for 4 years and interest rate is 5% annually: Option A: Receive four end of year payments each of $3,000. Option B: Receive four payments of $2,000, $3,000, $5,000 and $2,000 for the first, second, third and fourth year respectively. Which option has the higher present value? *

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Answer:

Option A CF Option B CF
1 3000 2857.142857 2000 1904.761905
2 3000 2721.088435 3000 2721.088435
3 3000 2591.512796 5000 4319.187993
4 3000 2468.107424 2000 1645.40495
PV 10637.85151 (Higher) 10590.44328
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