Question

On Joe Martin's graduation from college, Joe's uncle promised him a gift of $12000 in cash or $900 every quarter for the next 4 years after graduation. If money could be invested at 8% compounded quarterly, which offer is better for Joe?

I have done this problem but I keep getting to wrong answer for it and don't understand why?
Im getting the answer 339148.8 for the first part and 33914.88 for the second part but the book says the correct answers are 33914.88 and 33913.57. Help Please. ASAP I have a Math test tomorrow

Answer 1

12000(1+.08/4)^(4*4) = 16473.43

900*(1.02^16+1.02^15+...+1.02^1)
= 900(1.02^16 - 1)/(1.02-1)
= 16775.36

Have I missed something? My answers are about 1/2 the expected values.

Answer 2

I don't know it is really confusing. I am going to go talk to my teacher before class tomorrow.

Answer 3

I think Steve is missing part of the formula and/or using the wrong formula.

PV = paym(1 - (1+i)^-n)/i
so here
PV = 900(1 - 1.02^-16)/.02
= $12,219.94

So he should take the payment option.

Answer 4

ok that is right for the first part of the problem but apparently there are 2 parts