Use what you have learned about the time value of money to analyze each of the...

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Finance

Use what you have learned about the time value of money toanalyze each of the following decisions:
Assume that your grandmother wants to give you generousgift. She wants you to choose which one of the following sets ofcash flows you would like to receive:
Option A: Receive a one-time gift of $10,000 today.
Option B: Receive a $1600 gift each year for the next 10 years.The first $1600 would be received 1 year fromtoday.
Option C: Receive a one-time gift of $20,000 10 years fromtoday.
Compute the Present Value of each of these optionsif you expect the interest rate to be 2% annually for the next 10years.    Which of these options does financialtheory suggest you should choose?
Option A would be worth $__ today.
Option B would be worth $ today.
Option C would be worth $ today.
Financial theory supports choosing Option _
Compute the Present Value of each of these optionsif you expect the interest rate to be 5% annually for the next 10years. Which of these options does financial theory suggest youshould choose?
Option A would be worth $ today.
Option B would be worth $ today.
Option C would be worth $ today.
Financial theory supports choosing Option _
Compute the Present Value of each of these optionsif you expect to be able to earn 8% annually for the next 10 years.Which of these options does financial theory suggest you shouldchoose?
Option A would be worth $__ today.
Option B would be worth $ today.
Option C would be worth $ today.
Financial theory supports choosing Option _

Answer & Explanation Solved by verified expert

3.7 Ratings (384 Votes)

If interest rate is 2 Option 1 Present Value 10000 Option 2 Present Value 1600102 16001022 16001029 160010210 Present Value 1600 1 110210 002 Present Value 1600 8982585 Present Value 14372 Option 3 Present Value 2000010210 Present Value See Answer

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Use what you have learned about the time value of money toanalyze each of the following decisions:Assume that your grandmother wants to give you generousgift. She wants you to choose which one of the following sets ofcash flows you would like to receive:Option A: Receive a one-time gift of $10,000 today. Option B: Receive a $1600 gift each year for the next 10 years.The first $1600 would be received 1 year fromtoday. Option C: Receive a one-time gift of $20,000 10 years fromtoday.Compute the Present Value of each of these optionsif you expect the interest rate to be 2% annually for the next 10years. Which of these options does financialtheory suggest you should choose?Option A would be worth $__________ today.Option B would be worth $__________ today.Option C would be worth $__________ today.Financial theory supports choosing Option _______Compute the Present Value of each of these optionsif you expect the interest rate to be 5% annually for the next 10years. Which of these options does financial theory suggest youshould choose?Option A would be worth $__________ today.Option B would be worth $__________ today.Option C would be worth $__________ today.Financial theory supports choosing Option _______Compute the Present Value of each of these optionsif you expect to be able to earn 8% annually for the next 10 years.Which of these options does financial theory suggest you shouldchoose?Option A would be worth $__________ today.Option B would be worth $__________ today.Option C would be worth $__________ today.Financial theory supports choosing Option _______