Of the Following Investments, Which Would Have the Lowest Present

question 20

Multiple Choice

Of the following investments, which would have the lowest present value? 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) investment e pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).

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Definitions:

Unconditional Response

Unconditional response is a term that may be intended for "unconditioned response," which is an automatic, natural reaction to a stimulus in behavioral psychology.

Conditional Response

A learned response to a previously neutral stimulus that, after becoming associated with an unconditioned stimulus, triggers a conditioned reaction.

Unconditional Stimulus

In classical conditioning, a stimulus that naturally and automatically triggers a reflexive response without the need for prior learning.

Temperament Stability

Describes the extent to which individual differences in disposition or behavior style are consistent across time and situation.