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Say 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.


What is the Present Value of each of these options if you expect the interest rate to be 2% 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 _______

       

What is the Present Value of each of these options if you expect the interest rate to be 5% 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 _______


What is the Present Value of each of these options if you expect to be able to earn 8% 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 _______

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