Finding the lower present value

Reference no: EM131977772

Question: After graduating from college, you have a student loan that must be paid off. Your lender gives you two choices:

(a) pay a fixed amount of $3000 each year (starting a year from now) for 10 years, or

(b) pay escalating amounts that start $2400 (a year from now) and increase by 3% each year for 12 years. Assuming a discount rate of 5%, which has a lower present value?

Reference no: EM131977772

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