Question

Esther. Vida and Clair were asked to consider two different cash flows: GH¢1000 that theycould receive today and GH¢3000 that would be received 3 years from today. Esther wantedthe GH¢1000 today. Vida chose to collect GH¢3000 in 3 years, and Clair was indifferentbetween these two options. Which of the three women made the right choice? ​

Answer 1

The right choice is Esther's

Explanation:

Present worth of GH¢ after 3 years is better as its present really worth may be very high than GH¢ a thousand of today. Here fee of interest is not given to compare however GH¢ 3000 after three years will be equivalent to present well worth GH¢ 1000 if charge of interest >44.5% which may be very very excessive. Thus charge of interest > 44.5% Then GH¢ 3000 payable after 3 years could be equivalent to GH¢ 1000 Hence vide has made the proper preference. If interest price >44.5%.

Then Esther's preference will he right. (thinking about time value of money).