Ask Question
9 April, 11:01

Alfredo has two offers for his grocery shop. The first offer is a cash payment of $60,000, and the second is a down payment of $10,000 with payments of $6,000 at the end of each semiannual period for 5 years. Assuming an interest rate of 6% compounded semiannually, find the difference between the two present values. State the answer as an absolute value.

+4
Answers (1)
  1. 9 April, 14:08
    0
    First Offer

    Present value = $60,000

    Second Offer

    PV = Down payment + A (1 - (1 + r/m) - nm

    r/m

    PV = $10,000 + $6,000 (1 - (1 + 0.06/2)) - 5x2

    0.06/2

    PV = $10,000 + $6,000 (1 - (1 + 0.03)) - 10

    0.03

    PV = $10,000 + 6,000 (1 - (1.03)) - 10

    0.03

    PV = $10,000 + 6,000 (8.5302)

    PV = $61,181

    The difference between the two present values

    = $61,181 - $60,000

    = $1,181

    Explanation:

    The present value of the cash payment is $60,000. The present value of the second offer is the down payment plus the present value of semi-annual payments. We need to use the present value of annuity formula so as to determine the present value of semi-annual payments. Then. we will deduct the present value of the first offer from the present value of the second offer in order to obtain difference in present values.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Alfredo has two offers for his grocery shop. The first offer is a cash payment of $60,000, and the second is a down payment of $10,000 with ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers