Suppose the Interest Rate Is 5 Percent

question 151

Multiple Choice

Suppose the interest rate is 5 percent.Consider three payment options:
1) $500 today.
2) $520 one year from today.
3) $550 two years from today.
Which of the following is correct?

• A)1 has the lowest present value and 3 has the highest.
• B)2 has the lowest present value and 1 has the highest.
• C)3 has the lowest present value and 2 has the highest.
• D)None of the above is correct.

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Definitions:

Ending Inventory

The financial worth of goods up for sale at the termination of an accounting interval.

Cost Calculation

The process of determining the costs associated with producing a product or offering a service, considering all relevant expenses.

Periodic FIFO

An inventory valuation method where goods are sold based on the assumption that the oldest inventory items are sold first.

Ending Inventory

At the close of an accounting period, the financial worth of products available for sale, computed by starting with the inventory at the beginning, adding in purchases, and deducting the cost of goods sold.