Question

You have the choice of receiving $80,000 now or $33,000 now and another $56,000 three years from now. In terms of today's dollar, which choice is better and by how much? Money is worth 6.6% compounded annually. Which choice is better? A. They are equal in value. B. The choice of $33,000 now and $56,000 in three years is better. C. The choice of $80,000 now is better. The better choice is greater than the alternative choice by $ in terms of today's dollar. (Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed.)

Answer 1

Answer: To determine which choice is better in terms of today's dollar value, we can calculate the present value of both options using the given interest rate of 6.6% compounded annually.

Option 1: $80,000 now (present value)

Option 2: $33,000 now and $56,000 in three years (present value)

Let's calculate the present value of Option 2:

PV = FV / (1 + r)^n

PV = $33,000 + $56,000 / (1 + 0.066)^3

PV = $33,000 + $56,000 / (1.066)^3

PV = $33,000 + $56,000 / 1.199182

PV = $33,000 + $46,708.77

PV = $79,708.77

Now, we can compare the present values of both options:

Option 1: $80,000 (present value)

Option 2: $79,708.77 (present value)

Based on the calculations, the better choice is Option 1, which is $80,000 now. Option 1 is better than Option 2 by $80,000 - $79,708.77 = $291.23 in terms of today's dollar value.

Step-by-step explanation: