With a discount rate of .25% per month, which investment would have the highest present value today -
$\bullet$Investment A: Beginning today, has a cash flow of $1,500 per month for 60 months, or
$\bullet$Investment B: Beginning one month from today, has a cash flow of $1,525 per month for 59 months?

Question

Quizplus · Accepted Answer

Investment A has a higher present value because it starts one month earlier than Investment B, providing an additional month of cash flow at the beginning, which, despite the slightly lower monthly amount, outweighs the higher monthly cash flow of Investment B when discounted at a rate of .25% per month.

With a Discount Rate of ∙\bullet∙ Investment A: Beginning Today, Has a Cash Flow of $1,500

With a Discount Rate of $\bullet$ Investment A: Beginning Today, Has a Cash Flow of $1,500