Suppose the Interest Rate Is 8 Percent

Suppose the interest rate is 8 percent. Consider three payment options:
1) $200 today.
2) $220 one year from today.
3) $240 two years from today.
Which of the following is correct?

A) Option 1 has the highest present value and Option 2 has the lowest.
B) Option 2 has the highest present value and Option 3 has the lowest.
C) Option 3 has the highest present value and Option 1 has the lowest.
D) None of the above is correct.

Correct Answer:

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