Question

Which one of the following will produce the highest present value interest factor? A. 6 percent interest for five years B. 6 percent interest for eight years C. 6 percent interest for ten years D. 8 percent interest for five years E. 8 percent interest for ten years

Answer 1

Answer:

The correct answer is A

Explanation:

The formula to compute the present value interest factor using excel is as:

= 1/(1+r)^ n

where

r is the rate

n is number of years

So, in case of A,

The present value interest factor is:

= 1/(1+0.06)^5

= 0.74725

In case of B,

The present value interest factor is:

= 1/(1+0.06)^8

= 0.62741

In case of C,

The present value interest factor is:

= 1/(1+0.06)^10

= 0.55839

In case of D,

The present value interest factor is:

= 1/(1+0.08)^5

= 0.68058

In case of E,

The present value interest factor is:

= 1/(1+0.08)^10

= 0.46319

Therefore, it is highest in option A.