Answered

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You are offered Birr 1,000 today, Birr 10,000 in 12 years, or Birr 25,000 in 25 years. Assuming that you can earn 11 percent on your money, which offer should you choose?

Sagot :

Parrain

Based on the amounts that you are offered and their present values, the offer you should pick is Birr 10,000 in 12 years.

Which offer should you pick?

You should pick the offer with the highest present value.

Offer 1 present value:

= Birr 1,000

Offer 2 present value:

= 10,000 / (1 + 11%)²

= Birr 2,858

Offer 3 present value:

= 25,000 / (1 + 11%)³

= Birr 1,840

In conclusion, option 2 has the highest present value and so should be picked.

Find out more on present value calculations at https://brainly.com/question/27821989.

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