document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1161012>Question 1161012</A>: <I><SPAN STYLE=\"word-break: break-all;\"> You inherit $429,000. You can receive the $429,000 in one lump sum payment today or, alternatively, receive two amounts: $229,000 in 8 months and $220,000 in 21 months from today. If you can earn 13.3% per annum compounding monthly on your monies, what is the value of the option to receive two payments (in present day value)? </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #785063 by </B><A HREF=/tutors/aboutme.mpl?userid=Theo><B>Theo(13342)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=Theo><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=Theo><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=785063\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> you can receive 429,000 in one lump sum payment today or you can receive 229,000 in 8 months and 220,000 in 21 months.<BR>\n" );
document.write( "you can earn 13.3% per year compounded monthly.<BR>\n" );
document.write( "the present value of 229,000 received 8 months from today is equal to 229,000 / (1 + .133/12) ^ 8 = 209,671.7258.<BR>\n" );
document.write( "the present value of 220,000 received 21 months from today is equal to 220,000 / (1 + .332/12) ^ 21 = 173,540.6939.<BR>\n" );
document.write( "the sum of both present value is equal to 209,671.7258 + 173,540.6939 = 384,212.4198. ***** this is your solution.<BR>\n" );
document.write( "since this is less than 429,000, take the money up front.<BR>\n" );
document.write( "the following excel spreadsheet shows the present value of the 429000 and the present value of the 229000 and the 220000.<BR>\n" );
document.write( "it also shows an NPV analysis that shows the present value of all the cash flows to be negative at 13.3% annual rate of return.<BR>\n" );
document.write( "it also shows the internal rate of return of the cash flows to be about 3.8%.<BR>\n" );
document.write( "<IMG STYLE=\"max-width:80%;\" src = \"http://theo.x10hosting.com/2020/062202.jpg\" ><BR>\n" );
document.write( "since the present value of the cash flows of 229 and 220 is less than 429, then 429 is a better bet.<BR>\n" );
document.write( "since the npv is negative, this confirms the 429 up front is a better bet.<BR>\n" );
document.write( "since the internal rate of return is less than 13.3%, this also confirms the 429 up front is a better bet.<BR>\n" );
document.write( "none of this was needed to answer your question.<BR>\n" );
document.write( "your questions was answered up above next to *****.<BR>\n" );
document.write( " </SPAN>\n" );
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