Question

Suppose the risk-free interest rate is 4.5% . 

a. Having $300 today is equivalent to having what amount in one year?

 b. Having $300 in one year is equivalent to having what amount today?

 c. Which would you prefer,  $300 today or $300  in one year? Does your answer depend on when you need the money?  Why or why not?

Answer 1

4.5%= 0.045

A) 300* (1+0.045)= 313.5 answer

B) 300/ (1+ 0.045)= 287.0813397129 or answer: 287.08

C) 300 today, No the answer does not depend on when you need the money, because if you didn't need it then the $300 can be invested and you could have more than $300 in one year