Business, 10.09.2019 05:30 lexident

Auniversity of iowa basketball standout is offered a choice of contracts by the new york liberty.
the first one gives her $100,000 one year from today and $100,000 two years from today. the second
one gives her $132,000 one year from today and $66,000 two years from today. as her agent, you must
compute the present value of each contract. which of the following interest rates is the lowest one at
which the present value of the second contract exceeds that of the first?
a. 7 percent
b. 8 percent
c. 9 percent
d. 10 percent
a. 7 percent

Answers: 3

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Answer from: cuddleslugsovifat

The lowest interest rate at which the present value of the second contract exceeds that of the first is a. 7 percent.

Explanation:

Calculating present values is a useful way to compare cases where money is to be received in the future. The higher the present value (when comparing cases where you get money), the better. To calculate it, we make use of the next formula:

$PV=\frac{C}{(1+r)^{n}}$

Where PV: Present value,

C: Cash flow at a given period,

r: Interest rate, and

n: Number of periods that will have passed (in this case, we are talking about years).

Now, since we are getting money twice in each case (the first payment one year from today, and the final payment two years from today), we can restructure our present value formula to include these two payments. We will get something like this:

$PV=\frac{C_1}{1+r}+\frac{C_2}{(1+r)^{2}}$

Notice how each fraction represents one of the payments received, with one having an 'n' of 1 year, and the other one having an 'n' of 2 years. C₁ and C₂ represent the first and the second payment, respectively.

Now that we have our completed formula, let's review each contract's present value (PV) with the lowest interest rate (7%), just to see how it turns out. Remember that 7% equals 0.07 in any formula:

Contract A) This one gives her $100,000 one year from today and $100,000 two years from today.

$PV_{A,0.07}=\frac{100000}{1+0.07}+\frac{100000}{(1+0.07)^{2}}\\PV_{A,0.07}=93457.944+87343.873\\PV_{A,0.07}=180801.817dollars$

So Contract A's present value at 7% interest rate would be equal to $180801.817.

Contract B) The second one gives her $132,000 one year from today and $66,000 two years from today.

$PV_{B,0.07}=\frac{132000}{1+0.07}+\frac{66000}{(1+0.07)^{2}}\\PV_{B,0.07}=123364.486+57646.956\\PV_{B,0.07}=181011.442dollars$

So Contract B's present value at 7% interest rate would be equal to $181011.442, which exceeds that of Contract A.

Since among our options of interest rates, 7 percent is the lowest one, and, with this taken into account, the present value of the second contract (Contract B) exceeded that of the first (Contract A), the answer is a. 7 percent.

Answer from: Quest

answer; i believe both technician (a) and (b) are correct; /// good luck

Answer from: Quest

My first question is what benefits do you expect to achieve from career exploration? the benefits that i expect to achieve from career exploration. for me i think the benefits of exploring many different careers are that you get exposed to more, so it's easier for you to pick which one you like best. another benefit is that you get a more first hand view of what jobs are more likely to be needed in the future and that can be factored into your consideration. my second question is what do you expect to be the most challenging parts of your career planning process? why? the most challenging parts of my career planning process is trying to get things in order and trying to write this paragraph it is confusing and, hard work. and last but not least my third question is i think the most challenging part is taking the first step and really deciding on a career you want to pursue; there are so many options and it can be hard to choose.which jobs will allow me to make a living? ; what skills does emergency medical technician emergency medical services medical » physiology require?

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Auniversity of iowa basketball standout is offered a choice of contracts by the new york liberty.

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