contestada

Alfredo has two offers for his grocery shop. The first offer is a cash payment of $60,000, and the second is a down payment of $10,000 with payments of $6,000 at the end of each semiannual period for 5 years. Assuming an interest rate of 6% compounded semiannually, find the difference between the two present values. State the answer as an absolute value.

Respuesta :

ahmedgodtrust

Answer:

First Offer  

Present value = $60,000

Second Offer  

PV = Down payment + A(1 -(1 + r/m)-nm

                                                 r/m

PV = $10,000 + $6,000(1- (1+ 0.06/2))-5x2

                                                0.06/2

PV = $10,000 + $6,000(1 - (1 + 0.03))-10

                                                 0.03

PV = $10,000 + 6,000(1 - (1.03))-10

                                             0.03

PV = $10,000 + 6,000(8.5302)

PV = $61,181

The difference between the two present values

= $61,181 - $60,000

= $1,181

Explanation:

The present value of the cash payment is $60,000. The present value of the second offer is the down payment plus the present value of semi-annual payments. We need to use the present value of annuity formula so as to determine the present value of semi-annual payments. Then. we will deduct the present value of the first offer from the present value of the second offer in order to obtain difference in present values.

ACCESS MORE
ACCESS MORE
ACCESS MORE
ACCESS MORE

Otras preguntas