Which has a greater present value,a future value of $300,000 received in year 6,or an end-of-the-year annuity (first cash flow exactly one year from today)of $75,000 that lasts for four years if the relevant interest rate is 0%?
A)The future value of $300,000 is preferred.
B)The annuity has a greater present value.
C)You are indifferent to these two sets of cash flows on a present value basis.
D)You can't properly answer this question because the interest rate is 0%.

Question

Quizplus · Accepted Answer

At a 0% interest rate, the present value of money does not change over time. Therefore, the total of the annuity payments ($75,000 x 4 = $300,000) is equal to the future value of $300,000 received in year 6, making the present value of both options the same.

Which Has a Greater Present Value,a Future Value of $300,000