1. You are negotiating for the terms of a legal settlement, and your opponent’s attorney has presented you with the following alternative settlement alternatives:
a. $38,000 today in one lump sum.
b. $50,000 to be paid to you in five equal payments of $10,000 at the end of each of the next five years.
c. Five equal annual installments of $9,100 each, beginning today.
If your discount rate is 10%, what is the present value of each of the alternatives and which alternative would you choose?
2. If you deposit $100 in the bank today at an annual rate of 5.5% compounded annually, how long will it take to double In value?
3. Your Aunt Matilda Mae makes you the following offer: $15,000 upon undergraduate graduation in one year or $18,000 upon MBA graduation in 3 years. Which offer should you take if current rates are 14%?