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You are offered

# You are offered - If you can earn 14 on your funds which...

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You are offered \$900 5 years from now or \$150 at the end of each year for the next 5 years. If you can earn 6% on your funds, which offer will you accept? \$900 \$150 x 5.637 (FV of an annuity) = \$846 In this case I would choose to receive \$900 in 5 years because the FV of \$900 is greater than the FV of an annuity where payments are \$150 per year.
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Unformatted text preview: If you can earn 14% on your funds, which offer would you accept? \$900 \$150 x 6.61 (FV of an annuity) = \$991.50 In this case I would choose \$150 at 14% because I would be received \$91.50 more. Why are your answers different? Because the compounded money at 14% adds up much quicker for the annuity....
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