If the rate of discount is 20 percent, a. Would you ratherreceive $100 today or...

If the rate of discount is 20 percent,

a. Would you rather receive $100 today or $120 in one year?

b. Would you rather receive $205 today or $240 in one year?

c. Would you rather receive $500 in one year or $610 in two years?

Solutions

Expert Solution

Answer a)

Today = 100

Value of 120 today = 120 / (1+0.20)^1

= 100

indifferent to choose any option

Answer b)

Today = 205

Value of 250 today = 250 / (1+0.20)^1

= 208.33

Choose 208.33 after a year

Answer c)

value of 500 today = 500 / (1+0.20)^1 = 416.67

Value of 610 today = 610 / (1+0.20)^2

= 423.61

Choose 610 after 2 years

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

What is the value today of $1,800 per year, at a discount rate of 8 percent,...

What is the value today of $1,800 per year, at a discount rate of 8 percent, if the first payment is received 4 years from now and the last payment is received 25 years from today?

A monthly perpetuity of $100 will start 6 months from today. If the discount rate is...

A monthly perpetuity of $100 will start 6 months from today. If the discount rate is 6% APR compounded monthly, what is the value of the perpetuity today (at time t=0)? Enter answer as a dollar, rounded to nearest dollar.

How much should be deposited today to have $4,641 in 20 years when the discount rate...

How much should be deposited today to have $4,641 in 20 years when the discount rate s 14.9 percent with annual compounding?

What is the NPV at a discount rate of zero percent?

A project has the following cash flows: Year Cash Flow 0 –$ 15,400 1 7,300 2 9,100 3 5,900 a. What is the NPV at a discount rate of zero percent? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the NPV at a discount rate of 10 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the NPV at...

You are considering a project that has been assigned a discount rate of 12 percent. If...

You are considering a project that has been assigned a discount rate of 12 percent. If you start the project today, you will incur an initial cost of $280 and will receive cash inflows of $350 a year for 3 years. If you wait 1 year to start the project, the initial cost will rise to $420 and the cash flows will increase to $385 a year for 3 years. What is the value of the option to wait? O...

You are considering a project that has been assigned a discount rate of 8 percent. If...

You are considering a project that has been assigned a discount rate of 8 percent. If you start the project today (t=0), you will incur an initial cost of $980 and will receive cash inflows of $475 a year for three years. If you wait one year to start the project, the initial cost will rise to $1,000 (at t=1) and the cash flows will increase to $515 a year for three years (starting from year t=2). Should you wait...

Calculate the project's MIRR, given a discount rate of 9 percent. The MIRR of the project with a discount rate of 9% is...

Emily's Soccer Mania is considering building a new plant. This project would require an initial cash outlay of $8.5 million and would generate annual cash inflows of $3.5 million per year for years one through four. In year five the project will require an investment outlay of $5.5 million. During years 6 through 10 the project will provide cash inflows of $5.5 million per year.Question:Calculate the project's MIRR, given a discount rate of 9 percent. The MIRR of the project...

a)You are going to deposit $23,000 today. You will earn an annual rate of 4.9 percent...

a)You are going to deposit $23,000 today. You will earn an annual rate of 4.9 percent for 11 years, and then earn an annual rate of 4.3 percent for 14 years. How much will you have in your account in 25 years? b) You have decided to buy a car that costs $27,400. Since you do not have a big down payment, the lender offers you a loan with an APR of 6.09 percent compounded monthly for 7 years with...

An investment will pay you $16,000 in 7 years. The appropriate discount rate is 10 percent...

An investment will pay you $16,000 in 7 years. The appropriate discount rate is 10 percent compounded daily. What is the present value?

An investment will pay you $20,000 in 7 years. The appropriate discount rate is 9 percent...

An investment will pay you $20,000 in 7 years. The appropriate discount rate is 9 percent compounded daily. What is the present value? Multiple Choice $10,652.66 $10,972.24 $11,185.30 $10,120.03 $10,940.68

Subjects