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Lisa Preston is 22 years old, and her grandmother has remembered Lisa in her will, which is now being probated. Lisa has been bequeathed either a cash payment today of $35,000 or a cash payment on her birthday six years from now of $75,000. Assuming an annual interest rate of 5%, Lisa should take the cash and run.TrueFalse

Respuesta :

Answer:

False, Lisa should wait 6 years

Explanation:

Hi, in order to decide, we have to bring to present value both cash amounts, since $35,000 are already in the present, we will only have to bring to present value the $75,000 payment that will take place 6 years from no, we do this with the following formula.

[tex]PV=\frac{FV}{(1+r)^{n} }[/tex]

[tex]PV=\frac{75,000}{(1+0.05)^{6} } =55,966.15[/tex]

So, if she waits for 6 years, she will receive today´s equivalent to $55,966.15 instead of $35,000 today.

best of luck.

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