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FIN200 Week 9 Capstone CheckPoint

# FIN200 Week 9 Capstone CheckPoint - c In 25 years at 14...

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Unformatted text preview: c. In 25 years at 14 percent? d. In 25 years at 14 percent (compounded semiannually)? 5. Your uncle offers you a choice of \$30,000 in 50 years or \$95 today. If money is discounted at 12 percent, which should you choose? SOLUTION FROM ANSWER KEY (3) (a) PV (2 years from now) = FV * 0.926 = 5000 * 0.926 = \$4630 (b) PV (1 year from now) = FV * 0.926 = 4630 * 0.926 = \$4287.38 (c) PV (Today) = 4287.38 * 0.926 = \$3970.11 (d) Verification: 5000 * 0.794 = \$3970, which is the same as that got in (c) (4) A = P(1 + r/100n)^(nt) (a) A = 9000(1 + 9/100)^2 = \$10692.90 (b) A = 9000(1 + 12/100)^7 = \$19896.13 (c) A = 9000(1 + 14/100)^25 = \$238157.24 (d) A = 9000(1 + 14/200)^50 = \$265113.23 (5) We calculate the PV first. PV = FV/(1 + r/100)^t = 30000/(1 + 12/100)^50 = \$103.81 Since \$103.81 > \$95, we must choose \$30000 50 years from now ....
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