Assume that your grandmother wants to give you generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive: Option A: Receive a one-time gift of $10,000 today. Option B: Receive a $1600 gift each year for the next 10 years. The first $1600 would be received 1 year from today. Option C: Receive a one-time gift of $20,000 10 years from today.
Compute the Present Value of each of these options if you expect the interest rate to be 2% annually for the next 10 years. Which of these options does financial theory suggest you should choose? Option A would be worth $_10,000___ today. Option B would be worth $_14___ today. Option C would be worth $____ today. Financial theory supports choosing Option _______
Compute the Present Value of each of these options if you expect the interest rate to be 5% annually for the next 10 years. Which of these options does financial theory suggest you should choose? Option A would be worth $__________ today. Option B would be worth $__________ today. Option C would be worth $__________ today. Financial theory supports choosing Option _______
Compute the Present Value of each of these options if you expect to be able to earn 8% annually for the next 10 years. Which of these options does financial theory suggest you should choose? Option A would be worth $__________ today. Option B would be worth $__________ today. Option C would be worth $__________ today. Financial theory supports choosing Option _______
