Computation of pv of uneven cash flows and lump sum receipt

Reference no: EM1310369

Computation of PV of uneven cash flows and lump sum receipt

You have been given a choice between two retirement policies as described below.

Policy A: You will receive equal annual payments of $10,000 beginning 35 years from now for 10 years.

Policy B: You will receive one lump? Sum of $100,000 in 40 years from now.

Which policy would you choose? Assume rate of interest is 6 percent.

2. Calculate the present value of the following stream of cash flows, assuming that the firm's opportunity cost is 15 percent.
Years Amount

1-7 $12,000

8-10 14,000

3. Jeanne has just graduated from high school and has received an award for $5,000. She would like to deposit the money in an interest earning account until she graduates from college (i.e., four years from now). In her search for the highest interest earning account, she has narrowed the list down to the following two accounts: 1) bank A pays 9 percent interest compounded annually, and 2) bank B pays 8 percent interest compounded semi? Annually. Which is the better offer, and how much will Jeanne have upon graduation from college?

Reference no: EM1310369

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