A friend of yours hasn't taken this course and therefore does not appreciate the time-value of money. He offers to pay you back for that time he borrowed money and gives you two options: 

Option 1: Two equal payments of $3,700, today and in 4 years. 

Option 2: One single payment of $7,400 (twice the amount) in 2 years. 

Now, because you appreciate the time-value of money, you realize that, while the two options appear to have equal value, the two-payment option has a greater value. Assume money can earn 5.4% compounded weekly. Use today as your focal date and determine: 

a) The economic value of payment plan option 1 today. 

b) The economic value of payment plan option 2 today.

Answer rating: 100% (QA)

Calculate the present value of the twopayment option a Fo... View the full answer