What is the present value of this contract

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Reference no: EM131974246

a. You own a contract that promises an annuity cash flow of $350 year-end cash flows for each of the next 3 years. (Note: The first cash flow is exactly 1 year from today). At an interest rate of 5%, what is the present value of this contract?

b. You have been accepted into a prestigious private university in Illinois for your doctoral program. Congratulations! Since no one from this school has ever graduated in only 4 years, you anticipate that you will need to make 9 semi-annual tuition payments of $40,000 each with the first cash flow 6 months from today. If you choose to discount these cash flows at an annual rate of 8%, what is the present value cost of tuition to attend your university of choice?

c. You are about to purchase a new car from a dealer who has a new and unusual payment plan. You have the choice to pay $27,000 cash today or $30,000 in 4 years. If you have the opportunity to borrow the cash price value of the car at a rate of 2% and repay the loan in a lump sum in 4 years, which option should you take and why?

Reference no: EM131974246

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