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Suppose you have two clients who need your services for two years. One agreed to pay...

Suppose you have two clients who need your services for two years. One agreed to pay you $40,000 one year from now and another $40,000 in two years while the other paid $35,000 after one year, but $55,000 after two years. Assuming an interest rate of 5%, which one has a higher present value? Round off to the nearest dollar.

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Answer #1

Present value= A/(1+i)^n

Present value of first client = 40000/(1+0.05) + 40000/(1.05)^2

= 74376.42

Present value of second client= 35000/(1.05) + 55000/(1.05)^2

= 83219.95

Thus the second client has higher present value.

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