Consider the following alternatives: 1 $150 received in one year 11

Answer : (a.)

Calculation of Present value of 150 recived in one year if interest rate is 10%

Present Value = Future Value / (1 + rate)^number of years

rate is the rate of interest i.e 10% or 0.10

number of years is 1

Present Value = 150 / (1 + 0.10)^1

= 150 / 1.10

= 136.36

Calculation of Present value of 200 received in five years if interest rate is 10%

Present Value = Future Value / (1 + rate)^number of years

rate is the rate of interest i.e 10% or 0.10

number of years is 5

Present Value = 200 / (1 + 0.10)^5

= 200 / 1.61051

= 124.18

Calculation of Present value of 330 received in ten year if interest rate is 10%

Present Value = Future Value / (1 + rate)^number of years

rate is the rate of interest i.e 10% or 0.10

number of years is 10

Present Value = 330 / (1 + 0.10)^10

= 330 / 2.5937424601

= 127.23

Rank 1 ==> 150 received in one year if interest rate is 10%..

Rank 2 ==> 330 received in ten year if interest rate is 10%.

Rank 3 ==> 200 received in five years if interest rate is 10%.

Answer : (b.)

Calculation of Present value of 150 recived in one year if interest rate is 6%

Present Value = Future Value / (1 + rate)^number of years

rate is the rate of interest i.e 6% or 0.06

number of years is 1

Present Value = 150 / (1 + 0.06)^1

= 150 / 1.06

= 141.51

Calculation of Present value of 200 received in five years if interest rate is 6%

Present Value = Future Value / (1 + rate)^number of years

rate is the rate of interest i.e 6% or 0.06

number of years is 5

Present Value = 200 / (1 + 0.06)^5

= 200 / 1.3382255776

= 149.45

Calculation of Present value of 330 received in ten year if interest rate is 6%

Present Value = Future Value / (1 + rate)^number of years

rate is the rate of interest i.e 6% or 0.06

number of years is 10

Present Value = 330 / (1 + 0.06)^10

= 330 / 1.79084769651

= 184.27

Rank 1 ==> 330 received in ten year if interest rate is 6%.

Rank 2 ==> 200 received in five years if interest rate is 6%

Rank 3 ==> 150 received in one year if interest rate is 6%.

Answer : (c.)

Calculation of Present value of 150 recived in one year if interest rate is 14%

Present Value = Future Value / (1 + rate)^number of years

rate is the rate of interest i.e 14% or 0.14

number of years is 1

Present Value = 150 / (1 + 0.14)^1

= 150 / 1.14

= 131.58

Calculation of Present value of 200 received in five years if interest rate is 14%

Present Value = Future Value / (1 + rate)^number of years

rate is the rate of interest i.e 14% or 0.14

number of years is 5

Present Value = 200 / (1 + 0.14)^5

= 200 / 1.9254145824

= 103.87

Calculation of Present value of 330 received in ten year if interest rate is 14%

Present Value = Future Value / (1 + rate)^number of years

rate is the rate of interest i.e 14% or 0.14

number of years is 10

Present Value = 330 / (1 + 0.14)^10

= 330 / 3.70722131408

= 89.01

Rank 1 ==> 150 received in one year if interest rate is 14%..

.Rank 2 ==> 200 received in five years if interest rate is 14%.

Rank 3 ==> 330 received in ten year if interest rate is 14%