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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 Summary

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

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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 ...

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