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PRESENT VALUE, you have a choice of accepting either of the two, 5-year cash flow streams or lump sum amounts’. One cash flow stream is an annuity, and the other is a mixed stream. You may accept alternative A or B Either as cash flow stream or as a lump-sum. Given the cash flow stream and lump-sum amounts associated with each, and assuming a 9% opportunity cost, which alternative (A or B) And in which form (cash flow stream or lump-sum amount) would you prefer? End of year Alternative A Alternative B 1 $700 $1,100 2 $700 $900 3 $700 7$00 4 $700 $500 5 $700 $300 LUMP-SUM AMOUNT At time zero $2,825 $2,800

PRESENT VALUE, you have a choice of accepting either of the two, 5-year cash flow streams or lump sum amounts’. One cash flow stream is an annuity, and the other is a mixed stream. You may accept alternative A or B Either as cash flow stream or as a lump-sum. Given the cash flow stream and lump-sum amounts associated with each, and assuming a 9% opportunity cost, which alternative (A or B) And in which form (cash flow stream or lump-sum amount) would you prefer? End of year Alternative A Alternative B 1 $700 $1,100 2 $700 $900 3 $700 7$00 4 $700 $500 5 $700 $300 LUMP-SUM AMOUNT At time zero $2,825 $2,800

Essentials Of Investments
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
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PRESENT VALUE, you have a choice of accepting either of the two, 5-year cash flow streams or lump sum amounts’. One cash flow stream is an annuity, and the other is a mixed stream. You may accept alternative A or B Either as cash flow stream or as a lump-sum. Given the cash flow stream and lump-sum amounts associated with each, and assuming a 9% opportunity cost, which alternative (A or B) And in which form (cash flow stream or lump-sum amount) would you prefer?

End of year

Alternative A

Alternative B

1

$700

$1,100

2

$700

$900

3

$700

7$00

4

$700

$500

5

$700

$300

LUMP-SUM AMOUNT

At time zero

$2,825

$2,800
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