You are considering two investment options. In option A, you have to invest $4500 now and $1000 three years from now. In option B, you have to invest $3500 now, $1000 a year from now, and $1000 three years from now. In both options, you will receive four annual payments of $2000 each (you will get You are considering two investment options. In option A, you have to invest $4500 now and $1000 three years from now. In option B, you have to invest $3500 now, $1000 a year from now, and $1000 three years from now. In both options, you will receive four annual payments of $2000 each (you will get the first $2000 payment a year from now). Which of these two options would you choose based on the present worth criterion? Assume the interest rate is 10%.

Option B

Explanation:

The net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be found using a financial calculator.

For option A,

Cash flow in year 0 = -4500

Cash flow each year in year 1,2 and 4 = 2000

Cash flow in year 3 = 1000

I = 10%

NPV = $1,088.42

For option B,

Cash flow in year zero = -3500

Cash flow each year in year 1 and 3 = 1000

Cash flow in year 2 and 4 = 2000

I = 10%

NPV = $1,179.33

Choose the second option because its present value is greater than the first option.

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you

forbearance of student loan payments. under forbearance, your loan payments are postponed (or reduced) but interest continues to accrue during the period of forbearance. if you don't pay the interest during that period, the interest may be “capitalized,” which means it is added to your principal balance.

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