Much to your surprise, you were selected to appear on the TV show \"The Price is
ID: 2710853 • Letter: M
Question
Much to your surprise, you were selected to appear on the TV show "The Price is Right". As a result of your prowers in identifying how many rolls of toilet paper a typical American family keeps on hand, you win the opportunity to choose one of the following: $2,000 today, $9,000 in 10 years, or $25000 in 28 years. Assuming that you can earn 7% on your money, which should you choose?
If you are offered $9000 in 10 years and you can earn 7 perccent on your omney what is the present value of $9,000.
If you are offered $25,000 in 28 years and you can earn 7 % on your money, what is the present value of $25,000.
Explanation / Answer
Option 1 PV of Option 1 2,000.0000 Option 2 Amount in 10 Years 9,000.0000 PVF @7% for 10th year 0.5083 PV today = 9000 4,575.1436 Option 3 Amount in 28 Years 25,000.0000 PVF @7% for 28th year 0.1504 PV today = 9000 3,760.0553 Option 2 is best Time PVF @7% 1.00 0.9346 2.00 0.8734 3.00 0.8163 4.00 0.7629 5.00 0.7130 6.00 0.6663 7.00 0.6227 8.00 0.5820 9.00 0.5439 10.00 0.5083 11.00 0.4751 12.00 0.4440 13.00 0.4150 14.00 0.3878 15.00 0.3624 16.00 0.3387 17.00 0.3166 18.00 0.2959 19.00 0.2765 20.00 0.2584 21.00 0.2415 22.00 0.2257 23.00 0.2109 24.00 0.1971 25.00 0.1842 26.00 0.1722 27.00 0.1609 28.00 0.1504
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