Answered

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

Sagot :

marvineetesh3

Based on the amounts offered and their present values, the best offer is $10,000 for 12 years.

Why the second alternative can be chosen?

The second alternative is chosen, because this is chosen as it gets the higher amount of present value, the following are the calculations:

  • The present value of Offer 1 is $1,000.
  • The present value of Offer 2 is $2,858 (10,000 / (1 + 11%)²)
  • The present value of Offer 3 is $1,840 (25,000 / (1 + 11%)³)

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

Learn more about the present value, refer to:

https://brainly.com/question/17322936

#SPJ1

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