Your father offers you
a choice of $135,000 in 10 years or $50,000 today. Use Appendix B
as an approximate answer, but calculate your final answer using the
formula and financial calculator methods.
a-1.
If money is discounted at 9 percent, what is the present value of
the $135,000? (Do not round intermediate calculations.
Round your final answer to 2 decimal places.)
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a-2. Which offer should you choose?
$50,000 today
$135,000 in 10 years
b-1. Now assume the offer is $135,000 in 7 years or $50,000 today. What is the present value of the $135,000 at 9 percent for 7 years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
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b-2. Now, which offer should you choose?
$135,000 in 7 years
$50,000 today
Option 1 $135000 in 10 years
Option 2 $50000 today,
discounting rate r = 9%
using PV = FV/(1+r)^t
a-1). PV of $135000 in 10 years = 135000/1.09^10 = $57025.46
a-2). As, PV of $135000 in 10 years is higher, this offer is selected.
When time is 7 years.
b-1).
a-1). PV of $135000 in 7 years = 135000/1.09^7 = $73849.62
a-2). As, PV of $135000 in 10 years is higher, this offer is selected.
Your father offers you a choice of $135,000 in 10 years or $50,000 today. Use Appendix...