Question

Question 13 10 points Save Answer Why does $100 in the future not have the same value as $100 today? T TT T- E- Arial 3 (12pt) Path: p Words:0 Click Submit to complete this assessment. Question 13 of 13 « Save and Submit JUN W P W 14

Answer 1

$100 in the future is worth less than $100 today if the interest rate is 8%.
A certain amount of money will grow at the prevailing
interest rate to become $100 in the future.
Lets say you have $100 five years from today at an
interest rate of 8%.
Find out the present value of $100 five years from
today.
Discount it back five years at an interest rate of 8%.
Present Value = Future value/ ((1+r)^t)
where r is the interest rate and t is the time period in years.
Future value = 100
r = .08
t = 5.
Present Value = 100/ ((1.08)^5)
Present value is $68.05.

In other words, $100 five years from today is worth $68.05 today.