9) Consider the following four alternatives: 1. $132 received in two years. 2. $160 received in five years. 3. $200 received in eight years. 4. $220 received in ten years. The ranking of the four alternatives from most valuable to least valuable if the interest rate is 7% per year would be: A) 1, 2, 3, 4. B) 4, 3, 2, 1. C) 3, 4, 2, 1. D) 3, 1, 2, 4.

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Business

Dahlia Hudson

21 November, 00:51

9) Consider the following four alternatives: 1. $132 received in two years. 2. $160 received in five years. 3. $200 received in eight years. 4. $220 received in ten years. The ranking of the four alternatives from most valuable to least valuable if the interest rate is 7% per year would be: A) 1, 2, 3, 4. B) 4, 3, 2, 1. C) 3, 4, 2, 1. D) 3, 1, 2, 4.

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Answers (1)

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Brennan Smith · Answer 1

2, 3, 1 and 4

Explanation:

The computation of the present value is shown below:

Present value = Received amount : (1 + interest rate) ^number of years

1.

= $132 : (1 + 0.07) ^2

= $115.2939121321

2.

= $160 : (1 + 0.07) ^5

= $114.0777887174

3.

= $200 : (1 + 0.07) ^8

= $116.401820913

4.

= $220 : (1 + 0.07) ^10

= $111.8368442696

So the rank is

2, 3, 1 and 4

This is the answer but the same is not given in the options