Question

Award 1: $40,263 at the end of year 5 Award 2: An annuity of $4,500 over 5 consecutive years that begins at the end of year 5 Award 3: $104,431 at the end of year 15 Using an interest rate of 10%, Award 3 is worth how much more than Award 1 today? (Approximately within rounding)

Answer 1

Value of Award 1 at year 5 = 40,263
PV of award today = 40,263/(1+10%)⁵ = 25000.16

Value of Award 2 at year 5 can be calculated using PV of annuity formula = PMT*(1-(1+r)^-n)/r = 4500*(1-(1+10%)^-5)/10% = 17,058.54
Value of Award 2 at today =  17,058.54/(1+10%)⁵ = 10592.01

Value of Award 3 at end of 15 years = 104,431/(1+10%)¹⁵ = 24,999.95

The difference of value of Award 3 and Award 1 = 24,999.95 - 25000.16 = -0.20 which is almost 0( Actually Award 1 has moer worth but they are very close)

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