Your grandfather has offered you a choice of one of the three following alternat

Question

Your grandfather has offered you a choice of one of the three following alternatives: $14,500 now, $7,500 a year for five years; or $101,000 at the end of five years. Use AppendixB and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. Assing you could earn 9 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Present Value $14,500 $7,500 $101,000 2. Which alternative should you choose? O$101,000 received at end of five years $7,500 received each year for five years $14.500 received now b-1. If you could earn 10 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Present Value $14,500 $7,500 $101,000 b-2. Which alternative should you choose? $101,000 received atend of five years $7,500 received each yoar for five years $14,500 received now

Explanation / Answer

a-1.

a-2. $ 101,000 at the end of 5 years, as the present value is the highest

b-1.

b-2. Still $ 101,000 at the end of 5 years should be selected

a. Single payment to be made = 24,556 / FVi=7%, n=6 or 24,556 / 1.501 = $ 16,360

b. Amount to be paid = 24,556 / FVAi=7%, n=6 or 24,556 / 7.153 = $ 3,433

Present value $ 14,500 $ 14,500 $ 7,500 $ 29,175 $ 101,000 $ 65,650

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