A friend of yours hasn't taken this course and therefore does not appreciate the time-value of money. He offers to pay you back for that time he borrowed money and gives you two options: 1. Two equal payments of $1030, today and in 2 years, or 2. One single payment of $2060 (twice the amount) in 1 year.. Now, because you appreciate the time-value of money, you realize that, while the two options appear to have equal value, the two-payment option has a greater value. Assuming money can earn 11% compounded quarterly, how much of a difference is there between the values of the two options? Use today as your focal date and ensure your answer is positive.
A friend of yours hasn't taken this course and therefore does not appreciate the time-value of money. He offers to pay you back for that time he borrowed money and gives you two options: 1. Two equal payments of $1030, today and in 2 years, or 2. One single payment of $2060 (twice the amount) in 1 year.. Now, because you appreciate the time-value of money, you realize that, while the two options appear to have equal value, the two-payment option has a greater value. Assuming money can earn 11% compounded quarterly, how much of a difference is there between the values of the two options? Use today as your focal date and ensure your answer is positive.
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
100%
Transcribed Image Text:A friend of yours hasn't taken this cCourse and therefore does not appreciate the time-value of money He offers to pay you back
for that time he borrowed money and gives you two options:
1. Two equal payments of $1030, today and in 2 years, or
2. One single payment of $2060 (twice the amount) in 1 year.
Now, because you appreciate the time-value of money, you realize that, while the two options appear to have equal value, the
two-payment option has a greater value. Assuming money can earn 11% compounded quarterly, how much of a difference is
there between the values of the two options? Use today as your focal date and ensure your answer is positive.
Answer: $277
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education