5. Dr. Bob Jackson owns a parcel of land that a local farmer has offered to...
5. Dr. Bob Jackson owns a parcel of land that a local farmer has offered to rent for the next 10 years. The farmer has offered to pay $20,000 today or an annuity of $3,300 at the end of each of the next 10 years. Which payment method should Dr. Jackson accept if his required rate of return is 11 percent?
Homework Answers
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$3300[1-(1.11)^-10]/0.11
=$3300*5.889232011
=$19,434.47(Approx).
Hence payment method to be accepted by Dr.Jackson=$20,000 today having higher present value.
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