Your father offers you a choice of $105,000 in 12 years or $47,000 today. Use Ap

Question

Your father offers you a choice of $105,000 in 12 years or $47,000 today. Use Appendix B as an approximate answer, but calculate your final answer using the formula and financial calculator methods.

If money is discounted at 8 percent, what is the present value of the $105,000? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Now assume the offer is $105,000 in 9 years or $47,000 today. What is the present value of the $105,000 at 8 percent for 9 years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

If money is discounted at 8 percent, what is the present value of the $105,000? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Explanation / Answer

a-1. Present value of $105000 = $105000 x Present value of an annuity @ 8% for 12th year

= 105000 x 0.39711375861

= $41696.94

a-2. Second offer of receiving $47000 today should be chosen.

b-1. Present value of $105000 = $105000 x Present value of an annuity @ 8% for 9th year

= 105000 x 0.5002489671

= $52526.14

b-2. Second offer of receiving $105000 in 9 years should be chosen as the present value of $105000 is greater than $47000.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.