Decision #1: 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 cash flows you would like to receive: option a: receive a one-time gift of $ 10,000 today. option b: receive a $1500 gift each year for the next 10 years. the first $1500 would be received 1 year from today. option c: receive a one-time gift of $18,000 10 years from today.

Option A is the more convinient.

Explanation:

Giving the following information:

She wants you to choose which one of the following sets of cash flows you would like to receive:Option A: Receive a one-time gift of $ 10,000 today. Option B: Receive a $1500 gift each year for the next 10 years. The first $1500 would be received 1 year from today. Option C: Receive a one-time gift of $18,000 10 years from today.

We will assume a discount rate of 10%.

Option A:

Present value= $10,000

Option B:

Final value= {A*[(1+i)^n-1]}/i

A= annual deposit

FV= {1500*[(1.10^10)-1]/0.10= 23,906.14

PV= FV/(1+i)^n

PV= 23,906.14/1.10^10= $9,216.85

Option C:

PV= 18,000/1.10^10= $6,939.80

Decision #1: 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 of the following sets of cash flows you would like to receive:

Option A: Receive a one-time gift of $10,000 today.

Option B: Receive a $1,500 gift each year for the next 10 years. The first $1,500 would be received 1year for today.

Option C: Receive a one-time gift of $20,000 10 years from today.

Compute the Present Value of each of these options if you expect the interest rate to be 2% annually for the next 10 years.

Which of these options does financial theory suggest you should choose?

Explanation:

Decision #1: 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 of the following sets of

cash flows you would like to receive:

Option A: Receive a one-time gift of $10,000 today.

Option B: Receive a $1,500 gift each year for the next 10 years. The first $1,500 would be received 1year for today.

Option C: Receive a one-time gift of $20,000 10 years from today.

Compute the Present Value of each of these options if you expect the interest rate to be 2% annually for the next 10 years.

Which of these options does financial theory suggest you should choose?

Option A would be worth $10,000.00 today

Option B would be worth $13,473.88 $13,473.88 today

Option C would be worth $16,406.97 today

Financial theory supports choosing Option Option C

Compute the Present Value of each of these options if you expect the interest rate to be 5% annually for the next 10 years.

Which of these options does financial theory suggest you should choose?

Option A would be worth $10,000.00 today

Option B would be worth $11,582.60 $11,582.60 today

Option C would be worth $12,278.27 today

Financial theory supports choosing Option Option B

Compute the Present Value of each of these options if you expect the interest rate to be 7% annually for the next 10 years.

Which of these options does financial theory suggest you should choose?

Option A would be worth $10,000.00 today

Option B would be worth $10,535.37 $10,535.37 today

Option C would be worth $10,166.99 today

Financial theory supports choosing Option

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explanation:

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