Question

George is offered an investment opportunity by his friend Ray. He asks George for $6,900 and offers to repay him $12,990 after a period of ten years. George considers investing his money in his friend's project; however, the bank in his community offers an annual rate of interest of 9% on every deposit. Which do you think is the better investment option for George

Answer 1

Depositing in bank is a better option.

Step-by-step explanation:

For this solution, we can either determine the interest rate given to George by his one of the friend or the future worth method,

Future worth method is used here,

Given that,

PV = $6,900

R = 9%

N = 10 Years

`FV = PV*(1+R)^(N)`

`FV = 6,900*(1+0.09)^(10)`

`FV = 6,900*(1.09)^(10)`

FV = 6,900 × 2.3673

FV = $16,334.81

Since, the future worth of investing in bank is more than the money to be offered by the George's friend (16,334.81 > 12,900) and hence, depositing in bank is a better option.