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Your brother has offered to give you either $10,000 today or $20,000 in 9 years. If the interest rate is 7% per year which option is preferable?

User MSepehr
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1 Answer

6 votes

Answer:

receive $20000 in 9 years is preferable because its present value is greater than $10000 i.e $10878.67

Step-by-step explanation:

given data

offered = $10,000 or $20,000

time = 9 year

interest rate = 7%

solution

here when you receive = $20000 received in 9 years

so present value =
(receive\ amount)/((1+rate)^(time)) .................1

present value =
(20000)/((1+0.07)^9)

present value = $10878.67

so here receive $20000 in 9 years is preferable because its present value is greater than $10000

User Eddie Deyo
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