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    Required Return Rate

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    You can receive $10,000 today or $3,000 per year for the next five years. If the required rate of return is 10%, what option should be selected? (The present value of an ordinary annuity at 10% for five periods is 3.7908. The present value of one at 10% for five periods is 0.6209.)
    A. Receive $3,000 per year for the next five years.
    B. Receive $10,000 today
    C. The results are the same for both options.
    D. Neither option is desirable.

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    Solution Preview

    3000 * 3.7908 = 11372.4

    10000 - 11372.4 = ($1372.40)

    Because we're receiving the 3,000 each year over a future period, we would want to use the ordinary annuity value. We ...

    Solution Summary

    This solution provides the correct answer with explanation to the required return rate multiple choice question listed. Includes 1 reference.