What is the best way to compare these statements in order to figure out which is

Question

What is the best way to compare these statements in order to figure out which is the smallest?

Assume that the effective annual rate for all investments is the same and is greater than zero.

A

Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments)

B

Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments)

C

Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments)

D

Investment D pays $2,500 at the end of 10 years (just one payment)

E

$33,030

F

$34,681

Explanation / Answer

Hello Pal,

First of all a very nice as well as intersting question from your side.

So now straight to the question, as asked above with all the information available from your side and from mine, the answer the above question is as under:

The formula to calculate these are actually Present Value and Future Value only, to be sure, given the information above.

So, let us start with them one by one:

A) Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments)

Here, we assumed principal amount $50000 and rate of interest is 6%. So the results are as under:

Future Value = $92837.58

Present Value = $51,840.02.

B) Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments)

Here, we assumed principal amount $50000 and rate of interest is 6%. So the results are as under:

Future Value = $164954.97

Present Value = $51433.74.

C) Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments)

Here, we assumed principal amount $50000 and rate of interest is 6%. So the results are as under:

Future Value = $165230.86

Present Value = $51519.76.

D) Investment D pays $2,500 at the end of 10 years (just one payment)

Here, we assumed principal amount $50000 and rate of interest is 6%. So the results are as under:

Future Value = $55500.00

Present Value = $52358.49.

That is all I can say from the above given information by you, hope have solved your problem to some extent.

Regards,

Lokesh.

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