AW: Suppose you have two assets but

Suppose you have two assets. Asset A earns you $10 per period for periods 1 through 3. Asset B earns you $9 per period for periods 1 through 20.

What are the annual worths of assets A and B when the interest rate is 10%

Question options:

- A=30 and B=180
- A=10 and B=9
- A= 24.87 and B=76.59
- A=9.09 and B=8.18

Work:

Calculate the PW first using PW=A1+(A2/(1+i)^n):

Asset A: 10/1.1^3=7.513148

Asset B: 9/1.1^20 = 1.337793

Calculate Annual Worth

PW(A|P, i = 10%, n)

A: n = 3 (Factor 1.331), B: n = 20 (Factor 6.72750)

Use the FV table or your tvm solver:

AW(A): -7.513148(P|A,i=10%, 3)= 10

AW(B): -1.337793(P|A,i=10%, 20) = 9

The correct answer is:

*** A=10 and B=9**

page revision: 3, last edited: 07 Nov 2015 23:06