You are given two choices of investments, Investment A and Investment B. Both in
ID: 2704837 • Letter: Y
Question
You are given two choices of investments, Investment A and Investment B. Both investments have the same future cash flows. Investment A has a discount rate of 4%, and Investment B has a discount rate of 5%. Which of the following is true?
The present value of cash flows in Investment A is higher than the present value of cash flows in Investment B.
The present value of cash flows in Investment A is lower than the present value of cash flows in Investment B.
The present value of cash flows in Investment A is equal to the present value of cash flows in Investment B.
No comparison can be made - we need to know the cash flows to calculate the present value.
The present value of cash flows in Investment A is higher than the present value of cash flows in Investment B.
The present value of cash flows in Investment A is lower than the present value of cash flows in Investment B.
The present value of cash flows in Investment A is equal to the present value of cash flows in Investment B.
No comparison can be made - we need to know the cash flows to calculate the present value.
Explanation / Answer
The present value of cash flows in Investment A is lower than the present value of cash flows in Investment B.
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