Your Uncle Wants to Help You with Your College Expenses

question 27

Multiple Choice

Your uncle wants to help you with your college expenses, and he promised to pay you $10,000 next year and $15,000 in two years. The current interest rate is 6%, and you expect that this interest rate will be the same for the next year and will increase to 8% in the year after. What is the formula that you should use to compute the present discounted value of your uncle's contribution to your education expenses?

• A) 0 + 10,000 + 15,000
• B) 10,000/(1.06) + 15,000/((1.06) ∗ (1.06))
• C) 10,000/(1.06) + 15,000/((1.06)(1.08))
• D) 10,000/(1.06) + 15,000/((1.08)(1.08))

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Definitions:

Batch

A grouping of a number of items processed or produced together as a single lot.

Operating Characteristics Curve

A graphical representation that shows the relationship between the capability of a process and its performance with respect to different criteria.

Acceptance Sampling

A statistical quality control method that involves inspecting a random sample of items from a lot to determine if the entire lot should be accepted or rejected.