Suppose you need $10,000 in 5 years. The interest rate is r=4%. How much money do you need to put today in the bank?

The bank offers you an interest rate ofr-5%. But in a possible alternative investment, your cousin tells you that if you give him $10,000 today he will give you $11,000 back in 2 years. Where should you invest your money? In the bank or lend it to your cousin? [Assume there is no risk and it is therefore guaranteed that your cousin will pay you back.] 

 You have $10,000 and the interest rate is r-6%. An alternative investment opportunity tells you that if you give a certain company $10,000 today, then they will give you back $6,000 in 2 years and another $6,000 in 4 years. Which investment option should you choose?

Discuss how your consumption patterns between today and year will change if the Federal Reserve lowers interest rates.

Answer rating: 100% (QA)

1 Calculating Present Value To calculate how much money you need to put in the bank today to have 10000 in 5 years at an interest rate of 4 you can us... View the full answer