A) Mary will receive $13,000 per year for the next 10 years as royalty for her...
A) Mary will receive $13,000 per year for the next 10 years as
royalty for her work on a finance book. What is the present value
of her royalty income if the opportunity cost is 10
percent?
B) (CLO3) Assume that you just won a prize from UAE government for
your work in fighting COVID-19 pandemic. Your prize can be taken
either in the form of AED 25,000 at the end of each of the next 25
years (that is, AED 625,000 over 25 years) or as a single amount of
AED 500,000 paid immediately.
a. If you expect to be able to earn 5% annually on your investments
over the next 25 years, ignoring taxes and other considerations,
which alternative should you take? Why?
b. Would your decision in part a change if you could earn 7% rather
than 5% on your investments over the next 25 years? Why?
Homework Answers
Hi, As per the HOMEWORKLIB RULES, in case of multiple questions, I need to solve the first question.
The present value is computed as shown below:
Present value = Annual payment x [ (1 – 1 / (1 + r)n) / r ]
= $ 13,000 x [ (1 - 1 / (1 + 0.10)10 ) / 0.10 ]
= $ 13,000 x 6.144567106
= $ 79,879.37 Approximately
Feel free to ask in case of any query relating to this question
Add Answer to:
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