BUSI 320 Comprehensive Problem 3 Use what you have learned about the time value
ID: 2426372 • Letter: B
Question
BUSI 320 Comprehensive Problem 3
Use what you have learned about the time value of money to analyze each of the following decisions:
Decision #1: Which set of Cash Flows is worth more now?
Assume that your grandmother wants to give you generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive:
Option A: Receive a one-time gift of $ 9000 today.
Option B: Receive a $1300 gift each year for the next 10 years. The first $1300 would be
received 1 year from today.
Option C: Receive a one-time gift of $15,000 10 years from today.
Compute the Present Value of each of these options if you expect the interest rate to be 3% annually for the next 10 years. Which of these options does financial theory suggest you should choose?
Option A would be worth $__9000_____ today.
Option B would be worth $__11089____ today.
Option C would be worth $__11160______ today.
Financial theory supports choosing Option __C_____
Compute the Present Value of each of these options if you expect the interest rate to be 6% annually for the next 10 years. Which of these options does financial theory suggest you should choose?
Option A would be worth $_9000_____ today.
Option B would be worth $__________ today.
Option C would be worth $__________ today.
Financial theory supports choosing Option _______
Compute the Present Value of each of these options if you expect to be able to earn 9% annually for the next 10 years. Which of these options does financial theory suggest you should choose?
Option A would be worth $__________ today.
Option B would be worth $__________ today.
Option C would be worth $__________ today.
Financial theory supports choosing Option _______
Explanation / Answer
Answer:
Compute the Present Value of each of these options if you expect the interest rate to be 6% annually for the next 10 years. Which of these options does financial theory suggest you should choose?
Option A would be worth $_9000_____ today.
Option B would be worth $_9568_________ today.
Option C would be worth $_____8376_____ today.
Financial theory supports choosing Option ___B____
Answer:
Compute the Present Value of each of these options if you expect to be able to earn 9% annually for the next 10 years. Which of these options does financial theory suggest you should choose?
Option A would be worth $________9000__ today.
Option B would be worth $___8343_______ today.
Option C would be worth $__6336________ today.
Financial theory supports choosing Option __A_____
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