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 |

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