Question

Your brother has offered to give you either $10,000 today or $20,000 in 9 years. If the interest rate is 7% per year which option is preferable?

Answer 1

receive $20000 in 9 years is preferable because its present value is greater than $10000 i.e $10878.67

Step-by-step explanation:

given data

offered = $10,000 or $20,000

time = 9 year

interest rate = 7%

solution

here when you receive = $20000 received in 9 years

so present value =
`(receive\ amount)/((1+rate)^(time))` .................1

present value =
`(20000)/((1+0.07)^9)`

present value = $10878.67

so here receive $20000 in 9 years is preferable because its present value is greater than $10000