A Car Salesperson Gives You Four Alternative Ways to Pay

question 109

Multiple Choice

A car salesperson gives you four alternative ways to pay for your car.The first is to pay $18,000 today.The second is to pay $19,000 one year from today.The third is to pay $20,300 two years from today.The fourth is to pay $21,500 three years from today.If the interest rate is 6 percent,which payment option has the lowest present value and which has the highest?

• A)The first is lowest;the second is highest.
• B)The second is lowest;the third is highest.
• C)The third is lowest;the fourth is highest.
• D)The fourth is lowest;the first is highest.

---

Definitions:

Fair Value

An estimate of the price at which an asset would trade in a competitive auction setting.

Long-Term Investments

Assets that a company intends to hold for more than one fiscal year, such as stocks, bonds, real estate, or investments in other companies.

Available-for-Sale Debt Securities

Debt securities not classified as held-to-maturity or trading securities, recorded at fair value and subject to changes in the income statement upon realization.

Income Statement

A financial statement that reports a company's financial performance over a specific accounting period, detailing revenues, expenses, profits, or losses.