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Time Value of Money Exercises

1. The second offer of €215,000 paid in a year is better than the €200,000 offer today, as the present value of the second offer given a 12% discount rate is €191,667, higher than the first offer. 2. The Smiths' offer of €115,000 today is better than the Joneses' €150,000 offer in 3 years, as the present value of the latter given a 10% discount rate is €111,111, less than the first offer. 3. Paying €15,500 for the car today is better than the installment plan, as the present value of the installment payments given a 10% discount rate is €14

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58 views1 page

Time Value of Money Exercises

1. The second offer of €215,000 paid in a year is better than the €200,000 offer today, as the present value of the second offer given a 12% discount rate is €191,667, higher than the first offer. 2. The Smiths' offer of €115,000 today is better than the Joneses' €150,000 offer in 3 years, as the present value of the latter given a 10% discount rate is €111,111, less than the first offer. 3. Paying €15,500 for the car today is better than the installment plan, as the present value of the installment payments given a 10% discount rate is €14

Uploaded by

Αντώνης Τσίκος
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd

Time Value Exercises

1. You are trying to sell your restaurant in Santorini. Today, you have been offered
€200,000 by a potential buyer. You were about to accept the offer when another
individual offers you €215,000. However, the second offer will be paid a year from now.
Both potential buyers are honest and financial solvent, so you have no fear that the offer
you select will fall through. The discount rate is 12 percent. Which offer will you accept?

Which offer should you choose?

2. You are selling your Travel Agency. The Smiths have offered you today €115,000.
They will pay you immediately. The Joneses have offered you €150,000, but they cannot
pay you until three years from today. The interest rate is 10 percent.

Which offer should you choose?

3. Suppose that your auto dealer gives you a choice between paying today 15,500 euros
for a new car or entering into an installment plan where you pay 8,000 euros down today
and make payments of 4,000 euros in each of the next two years. Which is the better
deal? (Discount rate 10%)

4. Suppose your savings goal is to accumulate 10,000 euros by the end of 12 years. If the
interest rate is 8 percent, how much would you need to invest today to achieve
your goal?

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