Answer:
C)25 percent
Explanation:
Present value is the sum of discounted cash flows.
The interest rate where the present value of the two two prizes would be identical can be found using a financial calculator and trial and error method.
Option A :
Cash flow for year zero = $200
Cash flow for year one = $200
Present value when I is 0 = $400
Present value when I is 5 = $390.48
Present value when I is 10 = $381.82
Present value when I is 25 = $360
Option B
Cash flow in year 0 =$100
Cash flow in year 1 = $325
Present value when I is 0 = $425
Present value when I is 5 = $409.52
Present value when I is 25 = $360
Present value when I is 10 = $395.45
It can be seen that it's at 25% that both cash flows would be equal.
To find the PV using a financial calacutor:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
I hope my answer helps you
