Your grandfather has offered you a choice of one of the three following alternatives
Question
Your grandfather has offered you a choice of one of the three following alternatives: $9,500 now; $4,000 a year
for seven years; or $51,000 at the end of seven years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.
| a-1. | Assuming you could earn 11 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
| Present Value | |
| $9,500 | $ |
| $4,000 | $ |
| $51,000 | $ |
| a-2. | Which alternative should you choose? |
| $51,000 received at end of seven years$4,000 received each year for seven years$9,500 received now |
| b-1. | If you could earn 12 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
| Present Value | |
| $9,500 | $ |
| $4,000 | $ |
| $51,000 | $ |
| b-2. | Which alternative should you choose? |
| $51,000 received at end of seven years$4,000 received each year for seven years$9,500 received now |
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