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Compute the present value of each of options

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Reference no: EM132904428

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 $1350 gift each year for the next 10 years. The first $1350 would be received 1 year from today.
Option C: Receive a one-time gift of $15,000 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 $__________ 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 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 _______

Reference no: EM132904428

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