Question

Suppose the interest rate is 3.8 %...

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Suppose the interest rate is 3.8%. a. Having $250 today is equivalent to having what amount in one year? b. Having $250 in one year is equivalent to having what amount today? c. Which would you prefer, $250 today or $250 in one year? Does your answer depend on when you need the money? Why or why not? a. Having $250 today is equivalent to having what amount in one year? It is equivalent to $ - (Round to the nearest cent.) b. Having $250 in one year is equivalent to having what amount today? It is equivalent to $ . (Round to the nearest cent.) C. Which would you prefer, $250 today or $250 in one year? Does your answer depend on when you need the money? Why or why not? "Because money today is worth more than money in the future, $250 today is preferred to $250 in one year. This answer is correct even if you don't need the money today, because by investing the $250 you receive today at the current interest rate, you will have more than $250 in one year." Is the above statement true or false? True False

Answer 1

a)	Equivalent amount in one year
	FV= PV*(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= Number of years
	= $250*( 1+0.038)^1
	=250*1.038
	= $259.5
b)	Equivalent amount today
	PV = Future value / (1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= Number of years
	=$250/(1+0.038)^1
	=$240.85
c)	TRUE