Question

Please provide a real-life example of what you learned. It can be a present value, future value, number of periods, interest rate (growth rate), or payment problem. You need to state the problem and then solve the problem. The problem has to come from our daily life as a student

Answer 1

Real - time example of Present value with number of periods and interest rate :

When we have won a Dance competition and the winning amount of the competition has an option of (a) An amount of $150000 today or (b) An amount of $30000 every year for 6 years.

We have to calculate the present value of both the options and check out which option is having maximum present worth to the future value.

The present market interest rate is 10%, which is taken as the discount rate.

The present value of 'option a' is $150000 * PVIF (10% , 1) = $150000 * 1 = $150000

The present value of 'option b' is = $30000 * PVIFA(10% , 6) = $30000 * 4.3553 = $130659

So, the present value of the option a is better than the present value of option b, so the  (a) An amount of $150000 today, is opted to receive the winning amount of the competition.

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