Part One Instructions: The Chinese government is conducting an auction for a joi
ID: 2649538 • Letter: P
Question
Part One Instructions: The Chinese government is conducting an auction for a joint project involving oil exploration. Because of a desire for U.S. dollars, they require the winning bidder to make an up-front, one-time payment for the rights to join the project and supervise the work. The Chinese government will use the proceeds to cover all of the expenses during the life of the project. The winning bidder will receive a single payment at the end of the ten-year life of the project. This payment, based on the amount of the winning bid, will pay either simple interest of 15 percent annually or 10 percent annually compounded quarterly. Blue Mesa O bid team has to help evaluate its S47 million bid. First, find out the future value, on a per dollar basis, of each of the two interest payment options. Next, compute the future value of the $47 m on, and determine which is b on bid using each op er. Option 2: 10% an compounded quarter Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 $47 milExplanation / Answer
Calculation of Future value using oer $ value
Amount=P*R*T/100
per $=1*15%*10/100=1.0015
Total
FV=47+ 47*15%*10/100
=47+.705=47705000
Compounding
Per $=1*2.69
FV=2.69
FV=47(1+.10/4)10*4
FV=47*2.69
Compounding Qyarterly Value is bigger
FV=126.19