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19 August, 07:01

Your uncle offers you a choice of $115,0 in 10 years or $52,000 today, if the money is discounted at 9%, which should you do ose? 2. If you invest $9,500 per period or the fotioning number of periods how much would you have? A. 10years at 10% B. 15years at 9%

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  1. 19 August, 09:53
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    1) we would choose the second offer i. e. $52,000 today

    2) For A) 10 years at 10%

    Future value = $151,405.53

    For B) 15 years at 9%

    Future value = $278,928.70

    Explanation:

    1) Future value = $115,000

    Time, n = 10 years

    Discount rate, r = 9% = 0.09

    Now,

    Present value of the money provided after 10 years

    = Future Value : [ (1 + r) ⁿ ]

    = $115,000 : [ (1 + 0.09) ¹⁰ ]

    = $48,577.24

    Since,

    The Present value of $115,000 is less than the money to offered today i. e $52,000

    Hence, we would choose the second offer i. e. $52,000 today

    2) Payment per period = $9,500

    Future value = Yearly Payment * [ { (1 + r) ⁿ - 1 } : r ]

    Thus,

    For A) 10 years at 10%

    Future value = $9,500 * [ { (1 + 0.1) ¹⁰ - 1 } : 0.1 ]

    = $151,405.53

    For B) 15 years at 9%

    Future value = $9,500 * [ { (1 + 0.09) ¹⁵ - 1 } : 0.09 ]

    = $278,928.70
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