Question

Esther, Vida, and Clair were asked to consider two different cash flows: GH¢1000 that they

could receive today and GH¢3000 that would be received 3 years from today. Esther wanted
the GH¢1000 today, Vida chose to collect GH¢3000 in 3 years, and Clair was indifferent
between these two options. Which of the three women made the right choice?

Answer 1

Esther with GH¢ 2486.852 at the end of 3 years.

Step-by-step explanation:

Given that Esther collect GH1000

Vidha collect GH3000

Therefore, supposing the market rate is currently 10%

To get the future value of GH3000, we have,

Year 1= 0.909091,

Year 2 = 0.826446

Year 3 = 0.751315 * 3000 = 2253.945

Then assume Esther with GH1000, invested at the rate of 10%

Year 1= 0.909091 * 1000 = 909.0909

Year 2 = 0.826446 * 1000 = 826.4463

Year 3 = 0.751315 * 1000 = 751.3148

Total = 2486.852

Being indifference is not a smart choice either, as Clair could still pick the GH¢3000 in 3years in stead of GH¢1000 now.

Hence, it is apparent that out of the three Esther made the best decision as she has the highest money in value at the end of the 3years.