Homework Answers
The offer with highest present value today should be accepted
At 4% rate,
PV of 450 in 20 years = 450*PVF(4%, 20 years)
= 450*0.4564
= $205.38
PV of 320 in 10 years = 320*PVF(4%, 10 years)
= 320*0.6756
= $216.19
PV of 217 today = $217
Hence. 217 today should be accepted
At 2%
PV of 450 in 20 years = 450*PVF(2%, 20 years)
= 450*0.673
= $302.85
PV of 320 in 10 years = 320*PVF(2%, 10 years)
= 320*0.8203
= $262.5
PV of 217 today = $217
Accept 450, 20 years from now
At 7%
PV of 450 in 20 years = 450*PVF(7%, 20 years)
= 450*0.2584
= $116.28
PV of 320 in 10 years = 320*PVF(7%, 10 years)
= 320*0.5083
= $162.66
PV of 217 today = $217
Accept $217 today
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