Time Value of Money You have been hired as a financial advisor to Mr Sam. He has received two offers for playing for IPL and wants to select the best offer, based on consideration of money only. What will be your advice? (Hint: Compare the Present Value of each offer by assuming a range of interest, say 8% - 14%) Note: Please show the formula and calculation for the answer selected Offer: Offer A is a $10million offer for $2million a year for 5 years Offer B is a $11million offer of $1million a year for four years and $7million in year 5th   Question 1. What is the difference between PV Value (Present Values) of offer A and B at 12%? $0.1 million $0.2 million $0.7 million $0.8 Million Question 2. At 8% interest rate what would be the PV (Present Value) for Offer A $8.1 Million $8.4 Million $8.3 Million $7.9 Million Question 3. At 10% interest rate what would be the PV (Present Value) for Offer B $7.5 Million $8.1 Million $8.9 Million $8.5 Million

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
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Time Value of Money

You have been hired as a financial advisor to Mr Sam. He has received two offers for playing for IPL and wants to select the best offer, based on consideration of money only. What will be your advice? (Hint: Compare the Present Value of each offer by assuming a range of interest, say 8% - 14%)

Note: Please show the formula and calculation for the answer selected

Offer:

  1. Offer A is a $10million offer for $2million a year for 5 years
  2. Offer B is a $11million offer of $1million a year for four years and $7million in year 5th

 

Question 1. What is the difference between PV Value (Present Values) of offer A and B at 12%?

  1. $0.1 million
  2. $0.2 million
  3. $0.7 million
  4. $0.8 Million

Question 2. At 8% interest rate what would be the PV (Present Value) for Offer A

  1. $8.1 Million
  2. $8.4 Million
  3. $8.3 Million
  4. $7.9 Million

Question 3. At 10% interest rate what would be the PV (Present Value) for Offer B

  1. $7.5 Million
  2. $8.1 Million
  3. $8.9 Million
  4. $8.5 Million
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