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.

a-1. 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.)
a-2. Which offer should you choose?
b-1. 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.)
b-2. Now, which offer should you choose? 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.

a-1. 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.)
a-2. Which offer should you choose?
b-1. 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.)
b-2. Now, which offer should you choose?

Explanation / Answer

a1)

Present value = $105,000×(1÷(1+8%)^12) = $41,696.94

a2)

I will choose $47,000 today.

b1)

Present value = $105,000×(1÷(1+8%)^9) = $56,728.23

b2)

I will choose $105,000 in 9 years.

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