$240 two years from today. Which of the following is correct?
A) Option 1 has the highest present value and Option 2 has the lowest.
B) Option 2 has the highest present value and Option 3 has the lowest.
C) Option 3 has the highest present value and Option 1 has the lowest.
D) None of the above is correct.

Question

Quizplus · Accepted Answer

Option 3 has the highest present value because it offers a higher amount of money today ($220) compared to Option 1 ($200) and Option 2 ($210). This is because the earlier the money is received, the more valuable it is due to the time value of money. Therefore, Option 1 has the lowest present value and Option 2 has a lower present value than Option 3.

$240 Two Years from Today