Your aunt offers you a choice of $22,900 in 50 years or $500 today. At a discoun

Question

Your aunt offers you a choice of $22,900 in 50 years or $500 today. At a discount rate of 8 percent, how much is your aunt's offer of $22,900 worth today? (Enter your answer as a positive number rounded to 2 decimal places.)
  

You have just been notified that you will receive  $8,700 a year for the next 17 years from an inherited trust. If the interest rate is 13 percent, how much should you be willing to accept today in exchange for the annual payments? (Enter your answer as a positive number rounded to 2 decimal places.)
  

Sherwin Williams will earn $22,000 a year for the next 20 years for a picture he has painted. At an interest rate of 14 percent, how much are the earnings worth today? (Enter your answer as a positive number rounded to 2 decimal places.)
  

Explanation / Answer

1) Your aunt offers you a choice of $22,900 in 50 years or $500 today. At a discount rate of 8 percent, how much is your aunt's offer of $22,900 worth today

Solution: Choose $500 today

Working:

22900 * PV (8%; 50 period) = 22,900 * 0.0213 = 488.25

Thus choose $500 today

2) You have just been notified that you will receive $8,700 a year for the next 17 years from an inherited trust. If the interest rate is 13 percent, how much should you be willing to accept today in exchange for the annual payments?

Solution: $58543

Working:

8700 * PV (13%; 17 period); 8700*6.7291 = 58,543

3) Sherwin Williams will earn $22,000 a year for the next 20 years for a picture he has painted. At an interest rate of 14 percent, how much are the earnings worth today

Solution: $145,709

Working: 22,000 * PV (14%, 20 years) = 22,000 * 6.6231 = 145,709

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