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?(?Present-value comparison?) You are offered $2,000 ?today, ?$6,000 in 14 ?years, or ?$32,000 in 20 years....

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Finance

?(?Present-value comparison?) You are offered $2,000 ?today,?$6,000 in 14 ?years, or ?$32,000 in 20 years. Assuming that youcan earn 7 percent on your? money, which offer should you?choose?

a. What is the present value of ?$32,000 in 20 years discountedat 7 percent interest? rate?

?$ ? (Round to the nearest? cent.)

b. What is the present value of ?$6,000 in 14 years discountedat 7 percent interest? rate?

?$ ?(Round to the nearest? cent.)

c. Which offer should you? choose? ? (Select the best choice?below.)

A. Choose ?$6,000 in 14 years because its present value is thehighest.

B. Choose ?$2,000 today because its present value is thehighest.

C. Choose ?$32,000 in 20 years because its present value is thehighest.

Answer & Explanation Solved by verified expert
4.5 Ratings (670 Votes)

Present value is the today value or current value of amount to be received in future.
Present value = Future value*(1/(1+r)^n)
where r = interest rate
n = number of years.
a.
Calculation of present value
Present value 32000*(1/(1+0.07)^20)
Present value 32000*(1/(1.07^20))
Present value 32000*0.25842
Present value $8,269.41
Thus, present value of $32,000 is $8,269.41
b.
Calculation of present value of $6,000 in 14 years.
Present value 6000*(1/(1+0.07)^14)
Present value 6000*(1/(1.07^14))
Present value 6000*0.38782
Present value $2,326.90
Thus, present value of $6,000 is $2,326.90
c.
The present value in case of $32,000 is the highest among other two options and therefore choose $32,000 in 20 years.
Correct answer is option ( c)

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Transcribed Image Text

?(?Present-value comparison?) You are offered $2,000 ?today,?$6,000 in 14 ?years, or ?$32,000 in 20 years. Assuming that youcan earn 7 percent on your? money, which offer should you?choose?a. What is the present value of ?$32,000 in 20 years discountedat 7 percent interest? rate??$ ? (Round to the nearest? cent.)b. What is the present value of ?$6,000 in 14 years discountedat 7 percent interest? rate??$ ?(Round to the nearest? cent.)c. Which offer should you? choose? ? (Select the best choice?below.)A. Choose ?$6,000 in 14 years because its present value is thehighest.B. Choose ?$2,000 today because its present value is thehighest.C. Choose ?$32,000 in 20 years because its present value is thehighest.

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