Suppose the interest rate is 3.8%. a. Having $650 today is equivalent to having what amount...

Suppose the interest rate is 3.8%. a. Having $650 today is equivalent to having what amount in one year? b. Having $650 in one year is equivalent to having what amount today? c. Which would you prefer, $650 today or $650 in one year? Does your answer depend on when you need the money? Why or why not?

Solutions

Expert Solution

Amount in 1 year = 650(1.038) = $674.70

Amount today = 650/(1.038) = $626.20

Amount today has more value than amount in 1 year due to time value of money

jeff jeffy answered 2 years ago

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