Answered

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 :

Answer:

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

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 = [tex]\frac{receive\ amount}{(1+rate)^{time}}[/tex]       .................1

present value = [tex]\frac{20000}{(1+0.07)^9}[/tex]

present value  = $10878.67

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

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