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Homework answers / question archive / Assume the interest rate is positive and constant in the following five years
Assume the interest rate is positive and constant in the following five years. Which of the following cash flow stream has highest value at the end of year 5? Select one: a. You save $1000 at the beginning of every year for the next five years b. You save $5000 at the end of year 5. c. You save $100 at the beginning of every month period for the next 5 years, a total of 60 saving. d. You save $1000 at the end of every year for the next five years e. You save $5,000 now.
The correct option is "E"
If you save 5000 now, then the entire 5000 will earn compound interest for the next 5 years. So the net effect after 5 years will obviously be more than recurring savings of 100 or 1000. Here the entire 5000 will be earning compound interest for 5 years.
