Your father offers you a choice of $125,000 in 11 years or $45,500 today. Use Ap

Question

Your father offers you a choice of $125,000 in 11 years or $45,500 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 $125,000? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Present value =

a-2. Which offer should you choose?

b-1. Now assume the offer is $125,000 in 8 years or $45,500 today. What is the present value of the $125,000 at 8 percent for 8 years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Present value =
  

$45,500 today $125,000 in 11 years Appendix B Present value of $1,PVF PV=FV Percent Period 4 Appendlx B (concluded) Percent Period 50% 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.640 0.592 0.549 0.510 0.444 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0512 0.455 0.406 0.364 0.296 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.262 0.207 0.165 0.133 0.088 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.210 0.159 0.122 0.095 0.059 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.086 0.056 0.037 0.025 0.012 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.035 0.020 0.011 0.006 0.002 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.023 0.012 0.006 0.003 0.001 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.014 0.007 0.003 0.002 0 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.012 0.005 0.002 0.001 0 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010 0.004 0.001 0.001 0 0.026 0.020 0.015 0.012 0.009 0.007 0.005 0.004 0.001 0

Explanation / Answer

Answer a-1.

$125,000 in 11 years
Interest Rate = 8%

Present Value = $125,000 * PV of $1 (8%, 11)
Present Value = $125,000 * 0.429
Present Value = $53,625

Answer a-2.

You should chose $125,000 in 11 years

Answer b-1.

$125,000 in 8 years
Interest Rate = 8%

Present Value = $125,000 * PV of $1 (8%, 8)
Present Value = $125,000 * 0.540
Present Value = $67,500

Answer a-2.

You should chose $125,000 in 8 years

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