Question

Rocky and Adrien are selling their house. Offer #1 puts $8190 down and pays the lump sum $140,181 in 5 months. Offer #2 puts $8190 down and pays the lump sum $169,655 in 13 months. Assume their money can earn 7% if invested. What is the larger amount of money worth today (use today as a focal date)?

Answer 1

To determine the larger amount of money worth today, we calculate the present value of each lump sum payment using the formula: Present Value = Future Value / (1 + interest rate) ^ n. Offer #2 has the larger amount of money worth today, which is $157,871.41.

Step-by-step explanation:

To find out which offer has the larger amount of money worth today, we need to calculate the present value of both lump sum payments. The formula for present value is:

Present Value = Future Value / (1 + interest rate) ^ n

For Offer #1, the present value is $140,181 / (1 + 0.07/12) ^ 5*12 = $133,251.81. For Offer #2, the present value is $169,655 / (1 + 0.07/12) ^ 13*12 = $157,871.41.

Therefore, Offer #2 has the larger amount of money worth today, which is $157,871.41.