Fred and Barney Need some investment advice and you have been asked to evaluate

Question

Fred and Barney Need some investment advice and you have been asked to evaluate their offers.

Fred is looking at a investment that would pay him nothing until five years from today and then he would receive $40,000 every six months for ten years (20 payments) with the first payment of $40,000 coming five years from today. He then would receive $100,000 every year for ten years with first of these coming six months after his last payment of $40,000. Finally he would receive two payments of $500,000 with the first of these coming six months after the last payment of $100,000 and the second coming five years after the first payment of $500,000. The investment would cost him $725,000 today.

Barney

Explanation / Answer

Fred should not invest as total PV comes to 737898.6

whereas brad should invest since PV is 711099.4

You can access the spreadsheet here https://www.dropbox.com/s/ul416xt4n6z63tq/book2.xlsx

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