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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This note was uploaded on 04/01/2012 for the course FINC 354 taught by Professor Gibbons-cobb during the Spring '12 term at Columbia College.

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