?(?Present-value comparison?) You are offered $2,000 ?today, ?$6,000 in 14 ?years, or ?$32,000 in 20 years....

Free

80.2K

Verified Solution

Question

Finance

?(?Present-value comparison?) You are offered $2,000 ?today,?$6,000 in 14 ?years, or ?$32,000 in 20 years. Assuming that youcan earn 7 percent on your? money, which offer should you?choose?
a. What is the present value of ?$32,000 in 20 years discountedat 7 percent interest? rate?
?$ ? (Round to the nearest? cent.)
b. What is the present value of ?$6,000 in 14 years discountedat 7 percent interest? rate?
?$ ?(Round to the nearest? cent.)
c. Which offer should you? choose? ? (Select the best choice?below.)
A. Choose ?$6,000 in 14 years because its present value is thehighest.
B. Choose ?$2,000 today because its present value is thehighest.
C. Choose ?$32,000 in 20 years because its present value is thehighest.

Answer & Explanation Solved by verified expert

4.5 Ratings (670 Votes)

Present value is the today value or current value of amount to be received in future.

Present value = Future value*(1/(1+r)^n)
where r = interest rate
n = number of years.

a.
Calculation of present value
Present value	32000*(1/(1+0.07)^20)
Present value	32000*(1/(1.07^20))
Present value	32000*0.25842
Present value	$8,269.41

Thus, present value of $32,000 is $8,269.41

b.
Calculation of present value of $6,000 in 14 years.
Present value	6000*(1/(1+0.07)^14)
Present value	6000*(1/(1.07^14))
Present value	6000*0.38782
Present value	$2,326.90

Thus, present value of $6,000 is $2,326.90

c.
The present value in case of $32,000 is the highest among other two options and therefore choose $32,000 in 20 years.
Correct answer is option ( c)

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

?(?Present-value comparison?) You are offered $2,000 ?today,?$6,000 in 14 ?years, or ?$32,000 in 20 years. Assuming that youcan earn 7 percent on your? money, which offer should you?choose?a. What is the present value of ?$32,000 in 20 years discountedat 7 percent interest? rate??$ ? (Round to the nearest? cent.)b. What is the present value of ?$6,000 in 14 years discountedat 7 percent interest? rate??$ ?(Round to the nearest? cent.)c. Which offer should you? choose? ? (Select the best choice?below.)A. Choose ?$6,000 in 14 years because its present value is thehighest.B. Choose ?$2,000 today because its present value is thehighest.C. Choose ?$32,000 in 20 years because its present value is thehighest.