Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.
A) Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments).
B) Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).
C) Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).
D) Investment D pays $2,500 at the end of 10 years (just one payment).
E) Investment E pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).

Question

Quizplus · Accepted Answer

Investment D has the lowest present value because it involves a single payment far in the future, and the value of money received in the future is reduced when discounted back to the present, especially when compared to more frequent or earlier payments.

Of the Following Investments, Which Would Have the Lowest Present