Question

(Related to Checkpoint​ 5.4) ​(Present-value comparison) You are offered $100,000 today or ​$300,000 in 13

years.
Assuming that you can earn 11 percent on your​ money, which should you​ choose?
If you are offered $300,000 in 13 years and you can earn 11 percent on your​ money, what is the present value of $300,000​?

Answer 1

The present value of $300,000 can be calculated using the present value formula and is $79,361.01. Therefore, if you can earn 11% on your money, you should choose the option of $100,000 today.

Step-by-step explanation:

In order to determine whether to choose $100,000 today or $300,000 in 13 years, we need to compare the present value of the two options. The present value of $300,000 can be calculated using the present value formula:

`Present Value = Future Value / (1 + Interest Rate)^Number of Periods`

Using an interest rate of 11% and 13 periods, the present value of $300,000 is:

Present Value =
`$300,000 / (1 + 0.11)^13`

= $79,361.01

Therefore, if you can earn 11% on your money, you should choose the option of $100,000 today, as it has a higher present value than $300,000 in 13 years.