Assume that your grandmother wants to give you generous gift. She wants you to c
ID: 2645793 • Letter: A
Question
Assume that your grandmother wants to give you generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive:
Option A: Receive a one-time gift of $10,000 today.
Option B: Receive a $1600 gift each year for the next 10 years. The first $1600 would be
received 1 year from today.
Option C: Receive a one-time gift of $20,000 10 years from today.
Compute the Present Value of each of these options if you expect the interest rate to be 4% annually for the next 10 years. Which of these options does financial theory suggest you should choose?
Option A would be worth $__________ today.
Option B would be worth $__________ today.
Option C would be worth $__________ today.
Financial theory supports choosing Option _______
Explanation / Answer
option A= worth is $10,000
option B= 1600*8.111=12,977.6
option C= 20,000*0.676= 13,520
option C is most benefited one and it can be choosed.