Question

You are offered an investment opportunity in which you will receive $25,000 in one year in exchange for paying $23,750 today. Suppose the risk-free interest rate is 6% per year. Should you take this project

Answer 1

It is more profitable to receive $23,750 today than $25,000 in one year.

Step-by-step explanation:

Giving the following information:

Future Value= $25,000

Present Value= $23,750

Risk-free interest rate= 6%

We need to calculate the future value of $23,750. If it is higher, it is more convenient to receive $23,750 today.

FV= PV*(1+i)^n

FV= 23,750*(1.06^1)

FV= $25,175

It is more profitable to receive $23,750 today than $25,000 in one year.