Question

Would you rather receive S7,000 at the end of each year starting one year from now for ten years or would you rather have $58,000 today? Ignore taxes. Support your view. Assume you believe the appropriate investment rate you could earn on your money would be 9 percent.

Answer 1

Ans Having $58,000 today is more beneficial since its present value is more than S7,000 at the end of each year starting one year from now for ten years (i.e $ 44923.60)

P =	Periodic Payments
r =	rate of interest
n =	no of periods
Annuity PV Factor (End of Period) =	P [ 1 - ( 1 + r )^-n ]
	r
	7000* ( 1 - ((1 / (1 + 9%)^10)))
	9%
	4043.124352
	0.09
	44923.60