Suppose the interest rate is 4.3 %. a. Having $ 400 today is equivalent to having what amount in one year? b. Having $ 400 in one year is equivalent to having what amount today? c. Which would you prefer, $ 400 today or $ 400 in one year? Does your answer depend on when you need the money? Why or why not? a. Having $ 400 today is equivalent to having what amount in one year?

Question

Business

Romeo

5 May, 14:33

Suppose the interest rate is 4.3 %. a. Having $ 400 today is equivalent to having what amount in one year? b. Having $ 400 in one year is equivalent to having what amount today? c. Which would you prefer, $ 400 today or $ 400 in one year? Does your answer depend on when you need the money? Why or why not? a. Having $ 400 today is equivalent to having what amount in one year?

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Answers (1)

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Rachel French · Answer 1

Answer: a. $417.2. b. $383.51. c. $400 today.

Explanation:

a. Present value = $400

Interest rate = 4.3%

Future value = PV (1+r) ^n

= 400 (1+0.043) ^1

= 400 (1.043)

= $417.2

b. FV = $400

PV = Unknown

Interest = 4.3%

Future value = PV (1+r) ^n

400 = PV (1+0.043) ^1

400 = PV (1.043)

PV = 400/1.043

PV = $383.51

c. I'll prefer $400 today.

My answer does not depend on me needing money presently, I can actually invest the $400 today and get more value when it's a year. I'll have made more than $400.