Question

Suppose the interest rate is 4.1 %. a. Having $ 450 today is equivalent to having what amount in one​ year? b. Having $ 450 in one year is equivalent to having what amount​ today? c. Which would you​ prefer, $ 450 today or $ 450 in one​ year? Does your answer depend on when you need the​ money? Why or why​ not?

Answer 1

a. Future value of $ 450

FV= PV(1+r)^n

FV = future value

PV = present value

r = Interest rate

n = no of years

= 450(1+0.041)^1

= 450(1.041)

= $ 468.45

b Present value 0f $ 450 having after 1 year

PV = FV /(1+r)^n

= 450 / (1+0.041)^1

= 450 / 0.9606

= $ 432.28

c. It is preferable to have $ 450 today as it earn an interest of $ 18.45 for the year considering the time value of money even if the money is needed

Pls do rate, if the answer is correct and Comment, if any further assistance is required