Question

Your trust fund will pay you $100.000 in six years when you turn 25. A shady institute has encourage you to sign over in exchange of cash today. Would you prefer a 8% or 10% discount rate to determine value of lump sum payment ?

A. Use 8% the lump sum is $62, 741 is greater than 10% of $55,839.

B. Use 10% the lump sum is $62, 741 is greater than 10% of $55, 839.

C. Use 8% , the lump sum is $63,017 is greater than 10% of $56,447.

D. Use 10% the lump sum is $63,017 is greater than 10% of $56,447

Answer 1

1.10^6 = 1.77
1.08^6 = 1.59

100,000/1.77 = 56,447 using 10%

100,000/1.59 = 63,017 using 8%

so C

Answer 2

Thanks