Question

1A. Your uncle offers you a choice of $118,000 in 10 years or $40,000 today. Use Appendix B as an approximate answer, but calculate your final answer using the formula and financial calculator methods.

  
a-1. If money is discounted at 11 percent, what is the present value of the $118,000? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
  

  
a-2. Which offer should you choose?

1b. At a growth (interest) rate of 12 percent annually, how long will it take for a sum to double? To triple? Use Appendix A for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Answer 1

1A)

Future value = present value ( 1 + R)ⁿ

118,000 = present value (1 + 0.11)¹⁰

118,000 = present value * 2.83942

41,557.78 = Present value

Keys to use in a financial calculator: FV = 118,000, I/Y = 11, N = 10, CPT PV

A2)

Let the present value be 40,000

Future value be 2 * 40,000 = 80,000

80,000 = 40,000 ( 1 + 0.12)ⁿ

2 = ( 1.12)ⁿ

LN 2 = n LN 1.12

0.693147 = n 0.113329

6.12 = n

6.12 years

Keys to use in a financial calculator: PV = -20,000, FV = 40,000, I/Y = 12, CPT N