Answer:
1) we would choose the second offer i.e. $52,000 today
2) For A) 10 years at 10%
Future value = $151,405.53
For B) 15 years at 9%
Future value = $278,928.70
Explanation:
1) Future value = $115,000
Time, n = 10 years
Discount rate, r = 9% = 0.09
Now,
Present value of the money provided after 10 years
= Future Value ÷ [ ( 1 + r )ⁿ ]
= $115,000 ÷ [ ( 1 + 0.09 )¹⁰ ]
= $48,577.24
Since,
The Present value of $115,000 is less than the money to offered today i.e $52,000
Hence, we would choose the second offer i.e. $52,000 today
2) Payment per period = $9,500
Future value = Yearly Payment × [ { ( 1 + r ) ⁿ - 1 } ÷ r ]
Thus,
For A) 10 years at 10%
Future value = $9,500 × [ { ( 1 + 0.1 )¹⁰ - 1 } ÷ 0.1 ]
= $151,405.53
For B) 15 years at 9%
Future value = $9,500 × [ { ( 1 + 0.09 )¹⁵ - 1 } ÷ 0.09 ]
= $278,928.70
