Mitch has been offered three different contracts for a service he provides.
Contract 1: $9,000 received at the beginning of each year for ten years, compounded at a 6 percent annual rate.
Contract 2: $9,000 received today and $20,000 received ten years from today.The relevant interest rate is 12 percent.
Contract 3: $9,000 received at the end of Years 4, 5, and 6.The relevant annual interest rate is 10 percent.
What is the present value of Contract 1?
A) $66,240. 81
B) $118,627. 11
C) $70,215. 21
D) $125,744. 76

Question

Quizplus · Accepted Answer

Contract 1
Present value = $9,000 * Present value factor for an annuity due for i = 6% and n = 10
= $9,000 * 7.80169 (from Table 6)
= $70,215.21

Mitch Has Been Offered Three Different Contracts for a Service