Question: Your grandfather would like to share some of his fortune

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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