Question

Dalya is considering two offers on a property that she is willing to sell. Mr.Wangs offer is $65000 payable immediately. Ms.Macrae's offer is for $13,000 down and $58000 payable in two years.

a) Which offer has the greater economic value if Dalya can earn 7.50% compounded monthly on funds during this time?
the answer for this is MR.WANG'S OFFER

b) In current dollars, how much more is this offer worth?
the answer is $2056

i don't understand how to find tthat answer.i tried some ways but it comes differnt answer that i dnt get it.plz help.

Answer 1

The present value of Mr. Wang's offer is
$65000

the present value of Ms Macrae's offer is
13000 + 5800(1.00625)^-24 = 62944.37

the difference between the two values is
$2055.63

looks like they rounded to the nearest dollar.

Answer 2

THANKS!!! it is right. these maths are so hard. that i wanted to practice before the test on monday. Thanks, u saved the day!!! :D

Answer 3

For these type of question, my students always had to make a "time graph"

Then you decide on a fixed date, in this case "now", and move each money entry to that fixed date, either forward or backwards using the formula
principal(1+i)^n
if n is positive the money would move to the right
if n is negative the money would move to the left.