SOLUTION: Really Need help. 100 question HW. the ones i struggled the most on! Please help
1. Assume your business associate owes you $ 9500. Also assume they offer either $ 7700 now or
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Question 901402: Really Need help. 100 question HW. the ones i struggled the most on! Please help
1. Assume your business associate owes you $ 9500. Also assume they offer either $ 7700 now or $ 1900 per year for 5 years, starting now. Assume a 7 % market interest rate, compounded continuously.
How much would you have at the end of 5 years if you choose to take the $ 7700 offer now, and you use the market to earn interest on the funds? $
How much would you have at the end of 5 years if you choose to take the installments each year, and you still used the market to earn interest on the the funds? $
Is it better to take the lump sum? (Y for yes, N for no.)
Answer by solver91311(24713) (Show Source): You can put this solution on YOUR website!
If you take the lump sum of $7700, then you need to calculate the future value of a single investment at 7% for 5 years:
^n)
^5)
If you take the periodic payments, each made at the beginning of the year, then you need to calculate the future value of an annuity due on 5 annual payments of $1900 at 7% per annum.
^n\ -\ 1}{i}\right](1\ +\ i))
^5\ -\ 1}{0.07}\right](1.07))
Do the arithmetic and compare the results.
John
My calculator said it, I believe it, that settles it
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