Plan: You are considering three related questions. As usual, you will select the alternative that makes...
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Plan: You are considering three related questions. As usual, you will select the alternative that makes you the financially best off (wealthiest). Execute: a. Having $200 today is equivalent to having 200 × 1.04 = $208 in one year. b. Having $200 in one year is equivalent to having $200/1.04 = $192.31 today. Evaluate: Because money today is worth more than money in the future, $200 today is preferred to $200 in one year. This answer is correct even if you do not need the money today because, by investing the $200 you receive today at the current interest rate, you will have more than $200 in one year. Plan: You are considering three related questions. As usual, you will select the alternative that makes you the financially best off (wealthiest). Execute: a. Having $200 today is equivalent to having 200 × 1.04 = $208 in one year. b. Having $200 in one year is equivalent to having $200/1.04 = $192.31 today. Evaluate: Because money today is worth more than money in the future, $200 today is preferred to $200 in one year. This answer is correct even if you do not need the money today because, by investing the $200 you receive today at the current interest rate, you will have more than $200 in one year.
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Related Book For
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
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