When you graduate from college, your mother plans to give you a gift of $70,000 to start you on your way. However, to determine what you learned in business school, your mother presents you with four options on how to receive the gift. Which of the four options presented by your mother will yield the greatest present value to you? A. A lump sum of $70,000 after grad school (2 years) assuming a 7 % discount rate. B. A lump sum of $70,000 after grad school (2 years) assuming a 2% discount rate. C. A lump sum of $70,000 today. D $35,000 per year for the next 2 years using a 2 % discount rate.

Question

Business

Lucian Branch

27 July, 20:31

When you graduate from college, your mother plans to give you a gift of $70,000 to start you on your way. However, to determine what you learned in business school, your mother presents you with four options on how to receive the gift. Which of the four options presented by your mother will yield the greatest present value to you? A. A lump sum of $70,000 after grad school (2 years) assuming a 7 % discount rate. B. A lump sum of $70,000 after grad school (2 years) assuming a 2% discount rate. C. A lump sum of $70,000 today. D $35,000 per year for the next 2 years using a 2 % discount rate.

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Answers (1)

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Issac Nelson · Answer 1

C. A lump sum of $70,000 today.

Explanation:

C. - Because the if the cash is received today then you will don't have to discounted at all.

The other option puts the 70,00 in the future, so the present value will always be lower than 70,000 today under normal condition.