Future Value = Present Value (1 + r) t in which r is the rate and t is time (MyAccountingCourse, 2016)
Calculation of present value for each option
Present Value (PV) for option A is $10,000
Present Value for OPTION B is FV/ (1+r) t
PV = (20000/(1.065) 10
= $10,654.50
Calculation of future value for each option
Future value = Present Value (1+r) t
FV = $10000(1.065) 10
= $18,771.40
Future Value (FV) for option B is $20,000
Based on the calculations, PV of A = $10,000; PV of B = $10,654.50; FV of A = $18,771.40; FV of B = $20,000. Looking at both the present and future values, option B offers the best choice. It is important to note that while calculating the present values and future values, the involved process is an inverse of the other (Dworsky, 2009); thus, choosing between the two lump sums based on the present values often give similar result as choosing between similar two lump sums based on the future values.
Delegate your assignment to our experts and they will do the rest.
References
Dworsky, L. N. (2009). Understanding the mathematics of personal finance: An introduction to financial literacy . Hoboken, NJ: Wiley.
MyAccountingCourse. (2016). Present Value. Retrieved April 14, 2017, from www.myaccountingcourse.com/financial-ratios/present-value
