A financial planner at Faisal Bank has offered you three possible options for receiving cash flows. You must choose the option that has the highest present value. (Option 1) PKR 1,000 now and another PKR 1,000 at the beginning of each of the 11 subsequent months during the remainder of the year, to be deposited in an account paying a 12 percent nominal annual rate, but compounded monthly (to be left on deposit for the year). (Option 2) PKR 12,750 at the end of the year (assume a 12 percent nominal interest rate with semiannual compounding). (Option 3) A payment scheme of 8 quarterly payments made over the next two years. The first payment of PKR 800 is to be made at the end of the current quarter. Payments will increase by 20 percent each quarter. The money is to be deposited in an account paying a 12 percent nominal annual rate, but compounded quarterly (to be left on deposit for the entire 2-year period).

A financial planner at Faisal Bank has offered you three possible options for receiving cash flows. You must choose the option that has the highest present value. (Option 1) PKR 1,000 now and another PKR 1,000 at the beginning of each of the 11 subsequent months during the remainder of the year, to be deposited in an account paying a 12 percent nominal annual rate, but compounded monthly (to be left on deposit for the year). (Option 2) PKR 12,750 at the end of the year (assume a 12 percent nominal interest rate with semiannual compounding). (Option 3) A payment scheme of 8 quarterly payments made over the next two years. The first payment of PKR 800 is to be made at the end of the current quarter. Payments will increase by 20 percent each quarter. The money is to be deposited in an account paying a 12 percent nominal annual rate, but compounded quarterly (to be left on deposit for the entire 2-year period).

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 3PB: Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate...

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