Answer:
1. 2,584
Explanation:
future payments: $1,000 in 1 year and $2,000 in 3 years
the present value of alternative I (one year bond):
$1,000 / 1.06 = $943.40
the present value of alternative II (first 2 years and then 1 year):
$2,000 / 1.065 = $1,877.93 ⇒ PV at year 2
PV at year 0 = $1,877.93 / 1.07² = $1,640.26
the total present value of both options = $943.40 + $1,640.26 = $2,583.66 ≈ $2,584
Liabilities are settled over time through the transfer of economic benefits including money, goods, and services.
Liability are some things someone or company owes, that's usually a sum of cash.
Now we calculate the whole price of Bond I and also Bond II.
The longer term payments is : $1,000 in 1 year and $2,000 in 3 years.
The present value of different I (one year bond): $[tex]1,000 / 1.06[/tex] = $[tex]943.40[/tex]
The present value of other II (first 2 years then 1 year): $[tex]2,000 / 1.065[/tex] = $[tex]1,877.93[/tex]⇒ PV at year 2PV at year 0 = $1,877.93 / 1.07² = $1,640.26
The total present value of both options = $943.40 + $1,640.26 = $[tex]2,583.66 ≈[/tex]$2,584
Thus, the correction option is (1.) 2,584.
Find out more information about Liabilities here:
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