Which of the following investments has a higher present value, assuming the same (strictly positive) interest rate applies to both investments?
Year Investment X Investment Y
1 $5,000 $11,000
2 $7,000 $9,000
3 $9,000 $7,000
4 $11,000 $5,000
A) Investment X has a higher present value.
B) Investment Y has a higher present value.
C) Investment X and Investment Y have the same present value, since the total of the cash flows is the same for both.
D) No comparison can be made—we need to know the interest rate to calculate the present value
Answer: B
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