D Take a Test - Brandon Schrowang-Ggu a Secure https://www.mathxl.com/Student/Pl
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D Take a Test - Brandon Schrowang-Ggu a Secure https://www.mathxl.com/Student/PlayerTest.aspx?testld 1833980028kcenterwineyes BFN 201 Summer 2018 Brandon Schrowang&1 7/21/18 6:31 PM Test: Multiple Chapter Test Chapters 4-5 graded Tme Remang 0 301 St This Question: 4 pts 27 of 28 (20 complete) This Test: 100 pts possible Present value comparison) You are oftered S$1,800 today, $12,000in 12 years, r s28,000 n 23 years. Assuming that you can eam 7 percaent on your money,which offer should you choose? a. What is the present value of $28,000 in 23 years discounted at 7 percent interest rate? (Round to the nearest cent) b. What is the present value of $12,000 in 12 years discounted at 7 percent interest rate? s? (Round to the nearest cent) c. Which offer should you choose? (Select the bost choice below) O A. Choose $1,800 today because its present value is the highest Choose $28,000 in 23 years because its present value is the highest. NOc. Choose $12,000 in 12 years because its present value is the highest. O B. $1 m ivide cu ct (TeExplanation / Answer
Present value of an amount is computed as -
PV = Amount / (1 + r)n
where, r = rate of interest, n = no. of years
a) PV = $28000 / (1 + 0.07)23 = $5,906.51
b) PV = $12000 / (1 + 0.07)12 = $5,328.14
c) Option B - Choose $28000 in 23 years because its present value is the highest.
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