Question

Your grandfather has offered you a choice of one of the three following alternatives: $7,500 now: $2.200 a year for nine years; or $31,000 at the formula and financial calculator methods. e years. Use Appendix 8 and Appendix D for an approximate answer, but calculate your final answer using a-1. Assuming you coul calculations. Round your final answers to 2 decimal places.) d earn 10 percent annually, compute the present value of each alternative: (Do not round intermediate Present Value $7,500 $2,200 $31,000 a-2. Which alternative should you choose? $31,000 received at end of nine years. $2,200 received each year for nine years. $7,500 received now. b-1. If you could earn 11 percent annually, compute the present value of each alternative: (Do not round intermediate calculations Round your final answers to 2 decimal places.) Present Value $7,500 < Prev 3of4 Hi Next >

Answer 1

A-1	present value	7500		-7500
	present value of alternative 2 = Using present value function in MS excel	pv(rate,nper,pmt,fv,type) rate =10% nper = 9 pmt = 2200 fv = 0 type =0	PV(10%,9,2200,0,0)	($12,669.85)
	present value of alternative 3 = Using present value function in MS excel	pv(rate,nper,pmt,fv,type) rate =10% nper = 9 pmt = 0 fv = 31000 type =0	PV(10%,9,0,31000,0)	($13,147.03)
A-2	alternative 3 -	31000 received at the end of year 9
b-2	present value	7500		-7500
	present value of alternative 2 = Using present value function in MS excel	pv(rate,nper,pmt,fv,type) rate =11% nper = 9 pmt = 2200 fv = 0 type =0	PV(11%,9,2200,0,0)	($12,181.50)
	present value of alternative 3 = Using present value function in MS excel	pv(rate,nper,pmt,fv,type) rate =10% nper = 9 pmt = 0 fv = 31000 type =0	PV(11%,9,0,31000,0)	($12,118.67)
b-2	alternative 2 -	22000 received each year for 9 years