Suppose the Interest Rate Is 5 Percent

Suppose the interest rate is 5 percent. Consider three payment options:
1) $500 today.
2) $520 one year from today.
3) $550 two years from today.
Which of the following is correct?

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

Correct Answer:

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