Question

2. Present Value. Which of the following two options would you prefer assuming an effective annual discount rate of 8%? (a) 8100 today and S100 next year (b) $100 next year and $200 in ten years

Answer 1

(a)

present value

=100/(1+8%)^1+100/(1+8%)^2

=178.33

(b)

present value

=100/(1+8%)^1+200/(1+8%)^10

=185.23

as b has higher present value, so prefer this b option

the above is answer..