Calculate which has a higher present value: an annual payment of $100 received over 3 years or an annual payment of $50 received over 7 years. In both cases the interest rate is 7% (or 0.07).
What will be an ideal response?
We can use the present value formula to answer this question. In the case of the $100 payment, the present value = $262.43. In the case of the $50 payments received over 7 years, the present value is $269.46. So the 7 payments of $50 each have a higher present value.
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