A friend of yours hasn't taken this course and therefore does not appreciate the time-value...
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Accounting
A friend of yours hasn't taken this course and therefore does not appreciate the time-value of money. He offers to pay you back for that time he borrowed money and gives you two options:
Option 1: Two equal payments of $3,700, today and in 4 years.
Option 2: One single payment of $7,400 (twice the amount) in 2 years.
Now, because you appreciate the time-value of money, you realize that, while the two options appear to have equal value, the two-payment option has a greater value. Assume money can earn 5.4% compounded weekly. Use today as your focal date and determine:
a) The economic value of payment plan option 1 today.
b) The economic value of payment plan option 2 today.
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