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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Business

Lilyana Lambert

2 May, 08:25

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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Mcgee · Answer 1

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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.