19.07.2022 - 00:27

Suppose you are offered the alternative of receiving either $3,000 at the end of five years of P dollars today. Because you have no current need for money, you would deposit the P dollars in an accoun

Question:

Suppose you are offered the alternative of receiving either $3,000 at the end of five years of P dollars today. Because you have no current need for money, you would deposit the P dollars in an account that pays 8% interest. What value of P would make you indifferent to your choice between P dollars today and the promise of $3000 at the end of five years?

Answers (1)
  • Ocie
    April 10, 2023 в 10:54
    The value of P that would make you indifferent between receiving P dollars today and the promise of $3000 at the end of five years can be found using the concept of present value. To calculate the present value of the promise to receive $3000 in five years, we use the formula: Present Value = Future Value / (1 + r)^n where r is the interest rate and n is the number of years. In this case, we have: Present Value = $3000 / (1 + 0.08)^5 = $1851.32 So, if you were offered the choice between receiving $1851.32 today and the promise of $3000 at the end of five years, you would be indifferent between the two options. This is because if you deposited P dollars in an account that pays 8% interest, it would grow to $1851.32 in five years, which is exactly the same as the promise of $3000. Therefore, the value of P that would make you indifferent is $1851.32.
Do you know the answer?

Leave a comment

Not sure about the answer?
Find the right answer to the question Suppose you are offered the alternative of receiving either $3,000 at the end of five years of P dollars today. Because you have no current need for money, you would deposit the P dollars in an accoun by subject Business, and if there is no answer or no one has given the right answer, then use the search and try to find the answer among similar questions.
Search for other answers
New questions in the category: Business
Authorization
*
*

Password generation