Your Parents Have Made You Two Offers

question 25

Multiple Choice

Your parents have made you two offers.The first offer includes annual gifts of $10,000,$11,000,and $12,000 at the end of each of the next three years,respectively.The other offer is the payment of one lump sum amount today.You are trying to decide which offer to accept given the fact that your discount rate is 8 percent.What is the minimum amount that you will accept today if you are to select the lump sum offer?

• A)$28,216
• B)$29,407
• C)$29,367
• D)$30,439
• E)$30,691

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Definitions:

Adjustable Rate Mortgages

Home loans with interest rates that can change over time, typically in relation to an index or a predefined benchmark.

Residential Housing

Properties used specifically for dwelling purposes, including houses, apartments, and townhomes.

Mortgage Payments

These are regular payments made by a borrower to a lender, typically consisting of both principal and interest, for the loan used to purchase property.

Present Value

The present-day valuation of a future lump sum or cash flow sequence, taking into account a defined rate of return.