Question

Your father offers you a choice of $105,000 in 12 years or $47,000 today.

a. If money is discounted at 8 percent, which should you choose?

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?

Include financial calculator steps, including the keys pressed on the calculator to solve each question.

Answer 1

rate positively ..

Ans a)
Computation of present value
option 1 =
	Put in calculator
	FV		-105,000
	PMT		0
	I		8%
	N		12
	Compute PV	$41,696.94
option 2 =
	PV=		47,000
Since PV of 2nd option is higher therefore one should choose $47,000 today.
Ans b)
Computation of present value
option 1 =
	Put in calculator
	FV		-105,000
	PMT		0
	I		8%
	N		9
	Compute PV	$52,526.14
option 2 =
	PV=		47,000
Since PV of 1st option is higher therefore one should choose $105,000 in 9 years