Question

 (Present-value comparison) You are offered $1,400 today, $5,000 in 12 years, or $29,000 in 20 years. Assuming that you can earn 13 percent on your money, which offer should you choose? 

a. What is the present value of $29,000 in 20 years discounted at 13 percent interest rate?

Answer 1

Description	Option-1	Option-2	Option-3
Cash flow	$ 1,400.00	$    5,000.00	$ 29,000.00
Timeline in year	0	12	20
Interest rate	13%	13%	13%
PV factor	1/(1+13%)^0	1/(1+13%)^12	1/(1+13%)^20
PV factor	1.0000	0.2307	0.0868
Present value	1400*1.0000	5000*0.2307	29000*0.0868
Present value	$ 1,400.00	$    1,153.53	$    2,516.69
As we can see that the present value is highest in option-3 with 29000 in 20 years' time so this option should be preferred.