Your grandfather has offered you a choice of one of the three following alternatives: $8,500 now; $3,000 a year for five years;

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3 years ago

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Your grandfather has offered you a choice of one of the three following alternatives: $8,500 now; $3,000 a year for five years;

or $41,000 at the end of five years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a-1. Assuming you could earn 9 percent annually, compute the present value of each alternative:

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1 answer:

Mila [183] · Answer 1 · 2022-01-23T03:19:19+03:00

Answer:

Check the explanation

Explanation:

a1.Present value of $8500=$8500

the Present value of $3000 a year for 5 years=$3000*Present value of annuity factor(9%,5)

the Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$3000[1-(1.09)^-5]/0.09

=$3000*3.889651263

=$11668.95(Approx)

The Present value of $41000=$41000*Present value of discounting factor(rate%,time period)

=$41000/1.09^5

=$26647.19(Approx).

Therefore $41,000 received at end of five years is a better value.