An Obligation Can Be Settled by Making a Payment of $16

question 68

Essay

An obligation can be settled by making a payment of $16 000 now and a final payment of $30 000 in 3 years. Alternatively, the obligation can be settled by payments of $2500 at the end of every three months for four years. Interest is 12% compounded quarterly.
Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion.

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Definitions:

Crossing-Over

Exchange of segments between non-sister chromatids of a bivalent during meiosis.

Chromatids

One of two identical halves of a duplicated chromosome, joined together by a centromere and separated during cell division.

Genetic Material

The molecules responsible for heredity and variation of organisms, primarily DNA or RNA in viruses.

Homologous Chromosomes

Pairs of chromosomes in a diploid organism that are similar in shape, size, and gene content, one inherited from each parent.