Question 1

You want to buy a car, the garage gives the following choices:

1. Pay 3,000 today
2. Pay a deposit of 1,000 today and 2,000 in one year and 500 in two years time
3. Pay 1,100 for three years, first payment in one years time

The interest rate is 8%, which is the best offer?

Question 2

Suppose you win money from a game and are offered the following choices:

1. A cheque today for 5,000,000
2. A cheque every year for all years into the future of 300,000 starting in one year
3. A cheque every year for all years into the future of 250,000 first cheque paid today

The interest rate is 5%, which do you choose?

The interest rate is 5%, which do you choose?

Question 3

Your grandfather has bought you an investment that gives a dividend of $100 each year, you will receive the first dividend in one year, and the discount rate is 10%.

1. How much is this investment worth today?
2. How much is this investment worth today if you receive the first dividend today?