Question

You are offered $100,000 today or $300,000 in 13 years. Assuming that you can earn 11 percent on your money, which should you choose? View an example Question 12, B5-28 (book/static) Part 1 of 2 If you are offered $300,000 in 13 years and you can earn 11 percent on your money, what is the present value of $300,000? $ (Round to the nearest cent.)

Answer 1

To make the best choice between $100,000 today or $300,000 in 13 years at an 11% annual interest rate, calculate the present value of $300,000 using the formula and compare it to the $100,000. The present value is approximately $92,318.29. The better option is to take the $100,000 today as it is the higher amount.

Step-by-step explanation:

To determine whether you should choose $100,000 today or $300,000 in 13 years at an 11% annual interest rate, we need to calculate the present value of $300,000. The formula to calculate the present value of a future amount is: Present Value = Future Value / (1 + Interest Rate)^n, where n is the number of periods. Plugging in the values, the present value of $300,000 is approximately $92,318.29.

Comparing the present value of $92,318.29 with the $100,000 offered today, you should choose to take the $100,000 today as it is the higher amount.

Answer 2

The present value of $300,000 received in 13 years with an 11% annual interest rate is $78,867.18.

Step-by-step explanation:

To determine the present value of $300,000 received in 13 years with an 11% annual interest rate, we can use the formula for present value of a future cash flow.

The formula for present value is: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

Applying the formula, PV = $300,000 / (1 + 0.11)^13 = $78,867.18 (rounded to the nearest cent).