Present Value and Future Value

munaidu · #1 Aug 25, 2007, 07:08 PM

A rich godfather has offered you a choice of one of the three following alternatives: $10,000 now; $2,000 a year for eight years; or $24,000 at the end of eight years. Assuming you could earn 11 percent annually, which alternative should you choose? If you could earn 12 percent annually, would you still choose the same alternative?

munaidu · Aug 25, 2007, 09:54 PM

Quote:

Originally Posted by munaidu

A rich godfather has offered you a choice of one of the three following alternatives: $10,000 now; $2,000 a year for eight years; or $24,000 at the end of eight years. Assuming you could earn 11 percent annually, which alternative should you choose? If you could earn 12 percent annually, would you still choose the same alternative?

Please validate my attempt and correct me if I am wrong.

Choice A $ 10000 now
Choice B $ 26328 @ 11%, $2000 per month for 8 years (I calculated this using the PV formula for each year and added them all...sme for the next line)
Choice C $ 27551 @ 12%, $2000 per month for 8 years
Choice D $24000 at the end of 8 years

I chose - Choice C. Are my calculations correct and is my choice correct?



At Ask Me Help Desk you can ask questions in any topic and have them answered for free by our experts. To ask questions or participate in answering them you must register for a free account. By registering you will be able to: Get free answers from experts in any of our 300+ topics. Accept money for answers that you provide. Communicate privately with other members (PM). See fewer ads. Sign Up!