Problem based on required return rate


Problem: You can receive $10,000 today or $3,000 per year for the next five years. If the required rate of return is 10%, what option should be selected? (The present value of an ordinary annuity at 10% for five periods is 3.7908. The present value of one at 10% for five periods is 0.6209.)

A. Receive $3,000 per year for the next five years.

B. Receive $10,000 today

C. The results are the same for both options.

D. Neither option is desirable.

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Finance Basics: Problem based on required return rate
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