Question

Suppose the interest rate is 3.8 %. a. Having $ 500 today is equivalent to having what amount in one​ year? b. Having $ 500 in one year is equivalent to having what amount​ today? c. Which would you​ prefer, $ 500 today or $ 500 in one​ year? Does your answer depend on when you need the​ money? Why or why​ not?

Answer 1

a. $519

b. $481.69

c. $500 Today

Step-by-step explanation:

a. Computation of amount in one year

= $500 × 1.038

= $519

for computing the 1.038 (1 + 1.038)

b. Computation of amount of today

= $500 ÷ 1.038

= $481.69

c. $500 today

No, because today I have money and it will not depend on when I need the money. I can earn interest and invest the amount till the time I need the money actually.