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Demonstrate making use of financial mathematics

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Your favourite Grandma is so proud that you have decided to obtain a degree in such a useful discipline as Finance that she is willing to assist you with your course related and living costs. Even though she is old and frail she is a whiz with her personal finances and to help you out she has offered you a choice between an outright gift of $20,000 or $100,000 interest free loan to be paid back in five equal annual instalments of $20,000 each. Demonstrate making use of financial mathematics which alternative represents the optimal choice? Hint: You should find the interest rate of indifference first and then make an informed decision.

Reference no: EM132428786

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