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Receive a one-time gift

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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 $1400 gift each year for the next 10 years. The first $1400 would be received 1 year from today. Option C: Receive a one-time gift of $17,000 10 years from today.

Compute the Present Value of each of these options if you expect the interest rate to be 3% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

1. Option A would be worth $__________ today.

2. Option B would be worth $__________ today.

3. Option C would be worth $__________ today.

4. Financial theory supports choosing Option _______

Compute the Present Value of each of these options if you expect the interest rate to be 6% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

5. Option A would be worth $__________ today.

6. Option B would be worth $__________ today.

7. Option C would be worth $__________ today.

8. Financial theory supports choosing Option _______

Compute the Present Value of each of these options if you expect to be able to earn 9% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

9. Option A would be worth $__________ today.

10. Option B would be worth $__________ today.

11. Option C would be worth $__________ today.

12. Financial theory supports choosing Option _______

Reference no: EM132541257

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