Your favorite magazine, Fun with Present Value, offers you four different subscription deals for the next four years.It has guaranteed its current and future subscription rates, as shown below.Which will you take, if your annual rate of discount is 6 percent and you want to get the magazine for four years?
A)A one-year subscription for $24, followed by a one-year renewal each year for $24 each year.
B)A two-year subscription for $45, followed by a two-year renewal for $48.
C)A three-year subscription for $72, followed by a one-year renewal for $24.
D)A four-year subscription for $89.

Question

Quizplus · Accepted Answer

To compare the subscription deals, we need to calculate the present value of each deal using the annual rate of discount of 6%.

For option A, the present value of the first year's subscription is $22.64, and the present value of each subsequent year's renewal is $22.64. Therefore, the total present value for four years is $90.56.

For option B, the present value of the first two years' subscription is $41.12, and the present value of each subsequent two-year renewal is $42.74. Therefore, the total present value for four years is $168.34.

For option C, the present value of the first three years' subscription is $62.39, and the present value of the fourth year's renewal is $22.64. Therefore, the total present value for four years is $85.03.

For option D, the present value of the four-year subscription is $73.12.

Comparing the present values, option B has the lowest total present value, making it the best deal for a four-year subscription.

Your Favorite Magazine, Fun with Present Value, Offers You Four