Investment A will pay you 10000 in 4 years Investment B will

Investment A will pay you $10,000 in 4 years. Investment B will pay you $9,000 in two years. Assume that interest rates are 0%. All else equal, which investment do you choose? a. Investment A. b. Investment B. c. You are indifferent between the two investments.

Solution

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

A:

Present value=$10000/(1.0)^4=$10000

B:

Present value=$9000/(1.0)^2=$9000

Hence investment A must be chosen having higher present value.