Answer:
Instructions are listed below
Explanation:
Giving the following information:
She has a choice of receiving a payment of $160,000 immediately or of receiving deferred perpetuity with $10,000 annual payments, the first payment occurring in exactly four years.
A) i= 5%
First, we need to determine the value of the perpetuity four years from now.
Perpetuity= 10,000/0.05= 200,000
Now, we can calculate the present value:
PV= 200,000/(1.05^4)= $164,540.50
B) i= 6%
Perpetuity= 10,000/0.06= $166,666.67
PV= $166,666.67/1.06^4= $132,015.61
C) She should consider her necessities of cash and the value of the products she can purchase now.
