Jimbo Slice is deciding between receiving either $12,000 now or $15,000 five years from now. If...

Question

Question

Jimbo Slice is deciding between receiving either $12,000 now or $15,000 five years from now. If the annual compound interest

Answer 1

Answer #1

The present value of $ 12,000 to be received now is $ 12,000.

The present value of second option is computed as shown below:

= Future value / (1 + r)ⁿ

r is computed as follows:

= ( 6 x 4 + 3 ) / 4

= 6.75%

So, the present value is

= $ 15,000 / 1.0675⁵

= $ 10,820.61 Approximately

So, the best choice will be to receive $ 12,000 now.

Feel free to ask in case of any query relating to this question

Answer 2

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