a-1. Calculate the present value of a payment of $1,200 you would received for 1

Question

a-1. Calculate the present value of a payment of $1,200 you would received for 12 years if the interest rate is 3%.

a-2. Calculate the present value of a payment of $1,000 you would received for 17 years if the interest rate is 3%.

a-3. Which option would you prefer?
$1,200 a year for 12 years
$1,000 a year for 17 years

b-1. Calculate the present value of a payment of $1,200 you would received for 12 years if the interest rate is 12%.

b-2. Calculate the present value of a payment of $1,000 you would received for 17 years if the interest rate is 12%.

b-3. Which option would you prefer?
$1,000 a year for 17 years
$1,200 a year for 12 years

Explanation / Answer

1) PV1 = 1200/1.03 + 1200/1.03^2+ 1200/1.03^3+ 1200/1.03^4...+ 1200/1.03^12
2) pv2 = 1000/1.03 + 1000/1.03^2 + 1000/1.03^3 + ... + 1000/1.03^17
3) check totalcahs/presentvalue ratio

for 1) n =1200*12/pv1

2) n= 1000*17/pv2 
 greater ratio is better
b would be like same

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