Question

our parents have made you two offers. The first offer includes annual gifts of $5,000, $6,000, and $8,000 at the end of each of the next three years, respectively. The other offer is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 6.2 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer? D) $17,709.48 C) $16,360.42 B) $16,407.78 E) $17,856.42 A) $16,707.06

Answer 1

A) $16,707.06

Step-by-step explanation:

The computation of the minimum amount is shown below:

Here we find the present value which is shown below:

(in dollars) (in dollars)

Year Cash flows Discount factor Present value

1 5000 0.9416195857 4708.098

2 6000 0.8866474442 5319.885

3 8000 0.834884599 6679.077

Total 16707.059