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 3?
A) $18,497. 15
B) $16,815. 56
C) $24,619. 68
D) $22,381. 52

Question

Quizplus · Accepted Answer

Contract 3
Present value = ($9,000 * Present value factor for an ordinary annuity for i = 10% and n = 3)
*Present value factor for i = 10% and n = 3
= ($9,000 * 2.48685 from Table 5) *0.75131 from Table 4
= $16,815.56

Mitch Has Been Offered Three Different Contracts for a Service