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When you graduate from college, your mother plans to give you a gift of $40,000 to start you on your way. However, to determine what you learned in business school, your mother presents you with four options on how to receive the gift. Which of the four options presented by your mother will yield the greatest present value to you? Present Value of $1 Periods 2% 3% 4% 5% 6% 1 0.980 0.971 0.962 0.952 0.943 2 0.961 0.943 0.925 0.907 0.890 3 0.942 0.915 0.889 0.864 0.840 Present Value of Annuity of $1 Periods 2% 3% 4% 5% 6% 1 0.980 0.971 0.962 0.952 0.943 2 1.942 1.913 1.886 1.859 1.833 3 2.884 2.829 2.775 2.723 2.673     A lump sum of $40,000 today     $20,000 per year for the next 2 years using a 4% discount rate     A lump sum of $40,000 after grad school (2 years) assuming a 5% discount rate     A lump sum of $40,000 after grad school (2 years) assuming a 4% discount rate

When you graduate from college, your mother plans to give you a gift of $40,000 to start you on your way. However, to determine what you learned in business school, your mother presents you with four options on how to receive the gift. Which of the four options presented by your mother will yield the greatest present value to you? Present Value of $1 Periods 2% 3% 4% 5% 6% 1 0.980 0.971 0.962 0.952 0.943 2 0.961 0.943 0.925 0.907 0.890 3 0.942 0.915 0.889 0.864 0.840 Present Value of Annuity of $1 Periods 2% 3% 4% 5% 6% 1 0.980 0.971 0.962 0.952 0.943 2 1.942 1.913 1.886 1.859 1.833 3 2.884 2.829 2.775 2.723 2.673     A lump sum of $40,000 today     $20,000 per year for the next 2 years using a 4% discount rate     A lump sum of $40,000 after grad school (2 years) assuming a 5% discount rate     A lump sum of $40,000 after grad school (2 years) assuming a 4% discount rate

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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  1. When you graduate from college, your mother plans to give you a gift of $40,000 to start you on your way. However, to determine what you learned in business school, your mother presents you with four options on how to receive the gift. Which of the four options presented by your mother will yield the greatest present value to you?

    Present Value of $1
    Periods 2% 3% 4% 5% 6%
    1 0.980 0.971 0.962 0.952 0.943
    2 0.961 0.943 0.925 0.907 0.890
    3 0.942 0.915 0.889 0.864 0.840

    Present Value of Annuity of $1
    Periods 2% 3% 4% 5% 6%
    1 0.980 0.971 0.962 0.952 0.943
    2 1.942 1.913 1.886 1.859 1.833
    3 2.884 2.829 2.775 2.723 2.673
       
    A lump sum of $40,000 today
       
    $20,000 per year for the next 2 years using a 4% discount rate
       
    A lump sum of $40,000 after grad school (2 years) assuming a 5% discount rate
       
    A lump sum of $40,000 after grad school (2 years) assuming a 4% discount rate
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