Which of the following securities has the largest present value? Assume in all c

Question

Which of the following securities has the largest present value? Assume in all cases that the annual interest rate is 8 percent and that there are no taxes. a. A security that pays you $1,000 at the end of 1 year, $2,000 at the end of 2 years, and $3,000 at the end of 3 years. b. A seven-year zero coupon bond that has a face value of $8,500. c. A five-year zero coupon bond that has a face value of $7,000. d. A preferred stock issue that pays an $800 annual dividend in perpetuity. (Assume that the first dividend is received one year from today.) e. A five-year ordinary annuity that pays you $1,000 each year.

Explanation / Answer

d. A preferred stock issue that pays an $800 annual dividend in perpetuity. (Assume that the first dividend is received one year from today.)

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