1. You have the choice of receiving $80,000 now or $33,000 now and another $56,000 four...

1. You have the choice of receiving $80,000 now or $33,000 now and another $56,000 four years from now. In terms of today's dollar, which choice is better and by how much? Money is worth 4.8% compounded annually.

Which choice is better?

A. The choice of $80,000 now is better.

B. They are equal in value.

C. The choice of $33,000 now and $56,000 in four years is better.

2. Jane is purchasing a membership in a fitness centre. She can pay either $300 now or pay $190 now, $110 in nine months, and $80 in fourteen months. Which option is better if money is worth 7.7% compounded monthly?

Which choice is better?

A. They are equal in value.

B. The choice of $300 now is better.

C. The choice of $190 now, $110 in 9 months and $80 in 14 months is better.

Solutions

Expert Solution

1. Present value of future payments= (33000+(56000/(1.048)^4)= 79424

I will be willing to select $80000 now because it is having a higher present value

Correct answer will be (A) the choice of $80000 now is better.

2. The net present value of future payment is 283 so I will be accepting $300 now.

Correct answer is option (B)

jeff jeffy answered 2 years ago

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