Question

Investment x offers to pay you $3,700 per year for nine years, whereas investment y offers to pay you $5,500 per year for five years. which of these cash flow streams has the higher present value if the discount rate is 6 percent? if the discount rate is 22 percent?

Answer 1

The $3,700 (PV: $25,166.26) cash flow stream has the higher present value than the $5,500 (PV: 23,168) cash flow stream if the discount rate is 6 percent. The $5,500 (PV: 15.750.02) cash flow stream has the higher present value than the $3,700 (PV: $14,009.25) cash flow stream if the discount rate is 22 percent.