Your brother has offered to give you either $45,000 today or $90,000 in 12 years. If the...
Your brother has offered to give you either $45,000 today or $90,000 in 12 years. If the interest rate is 7% per year, which option is preferable?
Homework Answers
Present Value = Amount * 1/(1+ Rate of Interest)^ Time
= $ 90,000 * 1/(1.07)^12
= $ 39,961.08
Amount received today = $ 45,000
Since, the amount received today is greater than the Present Value of amount to be received 12 years from now, the option to receive today would be accepted.
Answer: Option to receive today.
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