Present Value 4 (and discounted cash flow)
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I'm not sure if that's correct, but at least it seems like the numbers work this way.
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Wow,this is so helpful for my finance class. Thanks.
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You did wrong this: you assumed that you won't need your money for at least two years. In the 3rd case you actually get SOME money every year, so you'll end up worse only after the full two years. In other words, in opt 1, you have $0 1st, $0 2nd and $110.25 the 3rd year. This is reflected in the PV, which takes into account the "pleasure" of having the money asap. But ofc, if you know you won't need your money for next 2 years, choose 1st opt, because the FV is better.
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"Year 1 lol"
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easy
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@Hudson4351 shut up dummy
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the choice for highest PV and highest FV is different.
so what?it depends whether u want the highest PV or highest FV?
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@raevansmd the second option is only available after 2 years so you have to use the 5% only and square it
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I believe the PV in option 2 should be $110/(1.05)(1.01) = $103.72. That makes it the best option.
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Did you watch the previous 3 videos?
khanacademy 3 years ago 24
In the video, you compared the present value of the 3 scenarios and concluded that option 3 was the most valuable because it had the highest PV. Could you have also made the comparison by finding the future (year 2) value of option 3 and comparing that to the year 2 values of options 1 and 2? I computed 20*(1.05)^2 + 50*(1.01)^1 + 35 = 107.55, but that indicates that option 1 is the better choice because it has the greatest value in year 2. What did I do wrong?
Hudson4351 2 years ago 11