a2

2. (a) Explain why this statement is true: A dollar in hand today is worth more than a dollar to be received next year. Provide relevant examples to support your explanation. (10) (b) Assume that you plan to buy an apartment 5 years from now and you need to save for a down payment. You plan to save $2,500 per year with the first deposit made immediately (at the beginning of the year), and you will deposit the funds in a bank account that pays 4% interest. How much will you have after 5 years? How much will you have after 5 years if you make the deposits at the end of each year? Even if the bank provided the same interest rate, which option (at the beginning of each year or at the end of each year) would give a higher total savings after 5 years? Explain. (10) (Total: 20)