A former student of an engineering department wishes to donate to the department's scholarship fund. Three options are available: Plan A: $60,000 now Plan B: $15,000 per year for 8 years beginning year 1 from now Plan C: $50,000 three years from now and another $80,000, five years from now. From the department's perspective, it wants to select the plan that maximizes the buying power of the dollars received. The department head asked the engineering professor evaluating the plans to account for inflation in the calculations. If the donation earns a real 10% per year and the inflation rate is expected to average 3% per year, which plan should be accepted?
A former student of an engineering department wishes to donate to the department's scholarship fund. Three options are available: Plan A: $60,000 now Plan B: $15,000 per year for 8 years beginning year 1 from now Plan C: $50,000 three years from now and another $80,000, five years from now. From the department's perspective, it wants to select the plan that maximizes the buying power of the dollars received. The department head asked the engineering professor evaluating the plans to account for inflation in the calculations. If the donation earns a real 10% per year and the inflation rate is expected to average 3% per year, which plan should be accepted?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
6. Use the provided chart to solve this problem. Show your work.
Transcribed Image Text:6. A former student of an engineering department wishes to donate to the department's
scholarship fund. Three options are available:
Plan A: $60,000 now
Plan B: $15,000 per year for 8 years beginning year 1 from now
Plan C: $50,000 three years from now and another $80,000, five years from now.
From the department's perspective, it wants to select the plan that maximizes the
buying power of the dollars received. The department head asked the engineering
professor evaluating the plans to account for inflation in the calculations. If the
donation earns a real 10% per year and the inflation rate is expected to average 3%
per year, which plan should be accepted? (
..)
Transcribed Image Text:factor name
single payment
compound amount
single payment
present worth
uniform series
sinking fund
capital recovery
uniform series
compound amount
uniform series
present worth
uniform gradient
present worth
uniform gradient
future worth
uniform gradient
uniform series
converts
P to F
F to P
F to A
P to A
A to F
A to P
G to P
G to F
G to A
symbol
(F/P, i%, n)
(P/F, 1%, n)
(A/F, i%, n)
(A/P, i%, n)
(F/A, 1%, n)
(P/A, i%, n)
(P/G,i%, n)
(F/G,1%, n)
(A/G, i%, n)
formula
(1 + i)"
(1 + i)-¹
i
(1 + i)" - 1
i(1+i)"
(1+i)n-1
(1+i)n-1
i
(1+i)n-1
i(1+i)n
1-
i
(1+i)n-1
1² (1+i)n
n
i(1+i)n
(1+i)n-1
n
i
n
(1+i)n-1
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