The time value of $ is what this topic is about and will help with the analysis for the questions below.

Question for Part 1: Which set of Cash Flows is worth more now?

You have a relative that is leaving you money. They want you to decide which form of cash flows you would like to receive.

Option 1: One-time gift of $ 10,000 today.

Option 2: $1400 annually for the next 10 years. The first $1400 would be

given 1 year from todays date.

Option 3: One-time gift of $17,000 10 years from todays date.

What is the Present Value for each option if the interest rate is 3% annually for the next 10 years? If you use financial theory, what option would it recommend that you use?

Option 1 would be worth $__________ today.

Option 2 would be worth $__________ today.

Option 3 would be worth $__________ today.

Financial theory suggests choosing Option _______.

What is the Present Value for each option if the interest rate is 6% annually for the next 10 years? If you use financial theory, what option would it recommend that you use?

Option 1 would be worth $__________ today.

Option 2 would be worth $__________ today.

Option 3 would be worth $__________ today.

Financial theory suggests choosing Option _______.

What is the Present Value for each option if you want to be able to make 9% annually for the next 10 years? If you use financial theory, what option would it recommend that you use?

Option 1 would be worth $__________ today.

Option 2 would be worth $__________ today.

Option 3 would be worth $__________ today.

Financial theory suggests choosing Option _______.