Question 1: Imagine that a genie (with a little bit of financial literacy) appears in front...

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Question 1: Imagine that a genie (with a little bit of financial literacy) appears in front of you and offers you 5 choices. You can either: a. Get £100,000 today b. Get £150,000 at the end of five years c. Get £20,000 at the end of each year for the next 10 years d. Get £20,000 at the beginning of each year for the next 10 years e. Get £12,000 a year forever f. Get £25,000 at the end of year 1 and an increasing payment thereafter by 5% a year for each one of the following 9 years g. Get £6,000 at the end of year 1 and increasing thereafter by 5% a year forever Assuming that the interest rate is 10%: i) calculate the present value of each offer (21 marks), and ii) Question 1: Imagine that a genie (with a little bit of financial literacy) appears in front of you and offers you 5 choices. You can either: a. Get £100,000 today b. Get £150,000 at the end of five years c. Get £20,000 at the end of each year for the next 10 years d. Get £20,000 at the beginning of each year for the next 10 years e. Get £12,000 a year forever f. Get £25,000 at the end of year 1 and an increasing payment thereafter by 5% a year for each one of the following 9 years g. Get £6,000 at the end of year 1 and increasing thereafter by 5% a year forever Assuming that the interest rate is 10%: i) calculate the present value of each offer (21 marks), and ii)

Answer rating: 100% (QA)

Step 11 i To calculate the present value of each offer we need to discount the future cash flows usi... View the full answer