Which scenario has a higher present discounted value (assume interest is compounded annually); $100 owed in 3 years at 8% interest or $90 owed in 2 years at 7.25 % interest?
A) $100 owed in 3 years
B) $90 owed in 2 years
C) Both scenarios have the same present discounted value
D) Cannot be determined with information provided

Question

Quizplus · Accepted Answer

The present value of $100 owed in 3 years at 8% interest is lower than the present value of $90 owed in 2 years at 7.25% interest. Calculating the present value for both: $100 / (1.08)^3 = $79.38 and $90 / (1.0725)^2 = $78.31. Therefore, $100 owed in 3 years has a higher present discounted value.

Which Scenario Has a Higher Present Discounted Value (Assume Interest