Your grandmother has told you she can either give you $4,000 now or $5,200 when
ID: 2432335 • Letter: Y
Question
Your grandmother has told you she can either give you $4,000 now or $5,200 when you graduate from college in three years. Your savings account earns 6% interest, compounded annually. Which option would be worth more to you now, and how much more? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Round your PV factor to 4 decimal places and final answer to 2 decimal places.)
The $4,000 now is worth $365.92 more than the $5,200 in the future.
The $5,200 in the future is worth $400.00 more than the $4,000 now.
The $5,200 in the future is worth $365.92 more than the $4,000 now.
The $4,000 now is worth $400.00 more than the $5,200 in the future.
Your grandmother has told you she can either give you $4,000 now or $5,200 when you graduate from college in three years. Your savings account earns 6% interest, compounded annually. Which option would be worth more to you now, and how much more? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Round your PV factor to 4 decimal places and final answer to 2 decimal places.)
Explanation / Answer
The correct answer is "The $5,200 in the future is worth $365.92 more than the $4,000 now" Present value of future value $5,200 Present value factor of 3rd year @6% 0.9434 0.8900 0.8396 Hence, present value of $5,200 = $(5,200*0.8396) = $4,365.92 We, can see $4,365.92 is more than what grandma will give now i.e. $4,000, hence I will accept $5,200 when I will complete my graduation after three years.
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