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You have the choice of receiving $90,000 now or $31,000 now and another $63,000 two years...

You have the choice of receiving $90,000 now or $31,000 now and another $63,000 two years from now. In terms of​ today's dollar, which choice is better and by how​ much? Money is worth 4.3 % compounded annually.

Which choice is​ better?

A. They are equal in value.

B. The choice of 31,000 now and $63,000 in two years is better.

C. The choice of $90,000 now is better.

The better choice is greater than the alternative choice by ​$__ in terms of​ today's dollar.

​(Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as​ needed.)

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Homework Answers

Answer #1

1. Present Value of Choice 1 = $90000

2. Present Value of Choice 2 = $31000 + 63000/(1+Interest)^2

Present Value of Choice 2 = $31000 + 63000/(1+0.043)^2

Present Value of Choice 2 = $31000 + 63000/ 1.087849

Present Value of Choice 2 = $31000 + 57912.45

Present Value of Choice 2 = $88912.45

Choice 1 offer more present value than choice 2

Thus C. The choice of $90,000 now is better.

The better choice is greater than the alternative choice by ​$1087.55 in terms of​ today's dollar (90000 - 88912.45)

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