1A. Your uncle offers you a choice of $118,000 in 10 years or $40,000 today. Use
ID: 2616256 • Letter: 1
Question
1A. Your uncle offers you a choice of $118,000 in 10 years or $40,000 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 11 percent, what is the present value of the $118,000? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
a-2. Which offer should you choose?
1b. At a growth (interest) rate of 12 percent annually, how long will it take for a sum to double? To triple? Use Appendix A for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
Explanation / Answer
1A)
Future value = present value ( 1 + R)n
118,000 = present value (1 + 0.11)10
118,000 = present value * 2.83942
41,557.78 = Present value
Keys to use in a financial calculator: FV = 118,000, I/Y = 11, N = 10, CPT PV
A2)
Let the present value be 40,000
Future value be 2 * 40,000 = 80,000
80,000 = 40,000 ( 1 + 0.12)n
2 = ( 1.12)n
LN 2 = n LN 1.12
0.693147 = n 0.113329
6.12 = n
6.12 years
Keys to use in a financial calculator: PV = -20,000, FV = 40,000, I/Y = 12, CPT N
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