An investor has €10000 to invest. She considers three investment opportunities which provide the following future income cash flows: Investment X: €20000after 20 years.

Investment Y: €1000 per annum a t the end of each of the 20years.

Investment Z: €500 per annum at the end of each of the next 19 years, and a final payment of €10500 at the end of 20 years.

a) Which of these investment opportunities has the largest present value? Explain your answer. (You do not need to do any calculations to answer the question.)

b) What is the net present value of investment X if the investor requires a rate of return of 5% per annum compounded-annually?

c) What is the net present value of investment Y if the investor requires a rate of return of 5% per annum compounded continuously?

Answer rating: 100% (QA)

a Largest Present Value Explanation Investment Y has the largest present value This is because it pr... View the full answer