Congratulations! You have just won a sweepstakes prize. The prize allows you to choose the method of
Question:
Congratulations! You have just won a sweepstakes prize. The prize allows you to choose the method of payment. Choice A: Receive $10,000 today Choice B: Receive $1,000 today and $1,000 at the end of each year for the next 12 years. Which alternative has a higher present value? Use an interest rate of 7%.
a) If a deposit of $2,000 today will grow to $2,160 in 1 year, what is the interest rate that is being used?
b) How many years does it take for a deposit of $1,000 to grow to $2,000 if the money is in an account earning 8% interest compounded annually?
c)Your travel agent informs you that the agency can guarantee a trip to Australia for $2,500. You currently have $1,700 to devote to the trip.
If bank accounts earn 6% interest compounded annually, how long will you have to wait to make the trip?
Introduction To Corporate Finance
ISBN: 9781118300763
3rd Edition
Authors: Laurence Booth, Sean Cleary