Question

Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose):
1. $ 7,000 per year at the end of each of the next five years
2. $ 40,040 (lump sum) now
3. $ 80,200 (lump sum) five years from now

Requirements
1. Calculate the present value of each scenario using a 6% discount rate. Which scenario yields the highest present value?
2. Would your preference change if you used a 12% discount rate?



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  • CreatedJanuary 16, 2015
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