Answer:
Doug Stamper
The CORRECT statement is:
b. Option A is the best choice because it has the largest present value.
Explanation:
a) Data and Calculations:
Option A: $2,000 per month for 84 months is worth PV = $136,906.08:
N (# of periods) 84
I/Y (Interest per year) 6
PMT (Periodic Payment) 2000
FV (Future Value) 0
Results
PV = $136,906.08
Sum of all periodic payments $168,000.00
Total Interest $31,093.92
Option B: $1,100 per month for 15 years is worth PV = $130,353.87:
N (# of periods) 180
I/Y (Interest per year) 6
PMT (Periodic Payment) 1100
FV (Future Value) 0
Results
PV = $130,353.87
Sum of all periodic payments $198,000.00
Total Interest $67,646.13
Option C: $125,000 lump sum today is equal to PV.
