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Essay Details:
Essay text:
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?
Solution:
(first alternative) Present value of 10,000 received now: 10,000
(second alternative) Present Value of annuity of 2,000 for eight years:
Appendix D
PVa=AxPVifa
=2,000xPVifa (11%,8years)
=2,000x5.146
=10,292
(third alternative) Present value of 24,000 received in 8 years
Appendix B
PV= FV x PVif
=24,000 x PVif(11%, 8 years)
I would select 24,000 to be received in 8 years
Revised answer based on 12%
First alternative present values of 10,000 received today 10,000
Second ? present value of annuity of 2,000 for 8 years (same as above but use 12)
Problem P9 ? 23
Payments Required: You need $28,974 at the end of 10 years, and your only investment outlet is an 8 percent long-term certificate of deposit (compounded annually)...
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