Which set of Cash Flows is worth more now? Assume that your grandmother wants to give...

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Finance

Which set of Cash Flows is worth more now?
Assume that your grandmother wants to give you generous gift.She wants you to choose which one of the following sets of cashflows you would like to receive:
Option A: Receive a one-time gift of $ 7500 today.
Option B: Receive a $1000 gift each year for the next 10 years.The first $1000 would be received 1 year from today.
Option C: Receive a one-time gift of $15,000 10 years fromtoday.
Compute the Present Value of each of these options if you expectthe interest rate to be 3% annually for the next 10 years. Which ofthese options does financial theory 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 options if you expectthe interest rate to be 7% annually for the next 10 years. Which ofthese options does financial theory 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 options if you expectto be able to earn 10% annually for the next 10 years. Which ofthese options does financial theory 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 _

Answer & Explanation Solved by verified expert

3.5 Ratings (492 Votes)

1 Present value of option A 7500 Present value of option B Annuity 1 1 1 rn r Present value of option B 1000 1 1 1 00310 003 Present value of option B 1000 8530203 Present value of option B 853020 Present value of option C FV 1 rn Present value of See Answer

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Which set of Cash Flows is worth more now?Assume that your grandmother wants to give you generous gift.She wants you to choose which one of the following sets of cashflows you would like to receive:Option A: Receive a one-time gift of $ 7500 today.Option B: Receive a $1000 gift each year for the next 10 years.The first $1000 would be received 1 year from today.Option C: Receive a one-time gift of $15,000 10 years fromtoday.Compute the Present Value of each of these options if you expectthe interest rate to be 3% annually for the next 10 years. Which ofthese options does financial theory 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 options if you expectthe interest rate to be 7% annually for the next 10 years. Which ofthese options does financial theory 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 options if you expectto be able to earn 10% annually for the next 10 years. Which ofthese options does financial theory 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 _______