Question

Which is worth more today:

1. $450 in 10 years assuming a 4% discount rate

1. $400 in 6 years assuming a 5% discount rate

a.Which is worth more today:

1. $100,000 in 100 years assuming a 6% discount rate

1. $310 in 2 years assuming a 2% discount rate

b.Which is worth more in the year given:

1. The year is 2021: $1000 in the year 2032, assuming a 6.5% discount rate

1. The year is 2090: $500 in the year 2108, assuming a 3% discount rate

c. In the question above (#9), what is each worth today, use the same discount rates indicated:

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Answer 1

To find which is worth more today out of the two options, we need to calculate the PV of the same:

• $450 in 10 years assuming a 4% discount rate:
  • We are given the following information

  • r	4.00%
    n	10
    frequency	1
    FV	$                  450.00

  • We need to solve the following equation to arrive at the required PV:
  • 
    FV = PV x (1+r)" 450 = PV X (1+0.04)10 PV = 304.00
    
  • So the PV was 304.00
• $400 in 6 years assuming a 5% discount rate
  • We are given the following information:

  • r	5.00%
    n	6
    frequency	1
    FV	$                  400.00

  • We need to solve the following equation to arrive at the required FV
  • 
    FV = PV x (1+r)" 400 = PV (1+0.05) PV = 298.47
    
  • So the PV is 298.47
• Therefore the first option is worth more now