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Chapter 4: Q8BP-b (page 282)

Your father offers you a choice of \(105,000 in 12 years or \)47,000 today. b. If money is still discounted at 8 percent, but your choice is between \(105,000 in 9 years or \)47,000 today, which should you choose?

Short Answer

Expert verified

The choice of $105,000 in 9 years should be preferred over$47,000 today

Step by step solution

01

Identification of the required information

Future value (FV) = $105,000

Interest Rate (i) = 8%

Period (n) = 9 year

02

Present value (PV)

PV=FV脳1+i-n=$105,000脳1+8%-9=$52,526.14

03

Final decision

The present value of $105,000 in 9 years is $52,526.14 which is more than $47,000 today. Thus, the option of $105,000 in 9 years should be chosen.

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Most popular questions from this chapter

Exodus Limousine Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 50 years. Compute the current price of the bonds if the percent yield to maturity is

a. 5 percent.

b. 15 percent.

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What are the basic benefits and purposes of developing pro forma statements and a cash budget?

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