Mr. Santos received two offers on a lot that he wants to sell. Ms. Perez offered Php 50,000.00 down payment and a lump sum of Php 1,000,000.00 after 5 years. Mr. Castro offered Php 50,000.00 down payment and Php 40,000.00 every quarter for 5 years. Compare the market values of the two offer if the money can earn 5% compounded annually.
Answers
Answer:
Quartely payment is beneficial for him
Step-by-step explanation:
Either he Pay 1,000,000.00 after 5 years
or 40,000.00 every quarter for 5 years
Let say He has Amount P invested now to pay 1,000,000.00 after 5 years
=> P (1 + 5/100)⁵ = 1000000
=> P = 7,83,526
Amount he need to have 7,83,526
Now if he Has 7,83,526
and he pay Quarterly 40000
so he will earn interest on (7,83,526 * 4 - 40000 - 80000 - 120000)/4
= 7,23,256
interest Earned = 7,23,256 * 5 /100 = 36163
Amount after 1 year = 7,83,526 - 160000 + 36163 = 659689
in 2nd year
he will earn interest on 659689 - 60000 = 5,99,689
interest Earned = 5,99,689 * 5 /100 = 29,984
Amount after 2nd year = 659689 - 160000 + 29,984 = 5,29,673
in 3rd year
he will earn interest on 5,29,673 - 60000 = 4,69,673
interest Earned = 4,69,673 * 5 /100 = 23,484
Amount after 3rd year = 5,29,673 - 160000 + 23,484 = 3,93,157
in 4th year
he will earn interest on 3,93,157 - 60000 = 3,33,157
interest Earned = 3,33,157 * 5 /100 = 16,658
Amount after 4th year = 3,93,157 - 160000 + 16,658 = 2,49,815
in 5th year
he will earn interest on 2,49,815 - 60000 = 1,89,815
interest Earned = 1,89,815 * 5 /100 = 9491
Amount after 5th year = 2,49,815 - 160000 + 9491 = 99,306
So he still have Left Rs 99306
Hence Quartely payment is beneficial for him