Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / You are entitled to collect a payment of $500,000, 5 years from now
You are entitled to collect a payment of $500,000, 5 years from now. The interest rate is 4% p.a. You have received an offer of $350,000 today for your entitlement. Should you accept the offer?
Value of your payment after 5 years = $500,000
Interest rate = 4%
Present value of the payment = $500,000 / (1+4%)5 = $500,000 / 1.216653 = $410,963.55
Present value of the payment is greater than the offer you have received ($350,000). Hence you should NOT accept the offer.
