Imagine that someone offers you $X today or $1,500 in 5 years.If the interest rate is 4 percent,then you would prefer to take the $X today if and only if
A)X 1,055.56.
B)X 1,120.89.
C)X 1,232.89.
D)X 1,338.26.

Question

Imagine that someone offers you $X today or $1,500 in 5 years.If the interest rate is 4 percent,then you would prefer to take the $X today if and only if
A)X > 1,055.56.
B)X > 1,120.89.
C)X > 1,232.89.
D)X > 1,338.26.

Quizplus · Accepted Answer

The present value of $1,500 in 5 years at a 4% interest rate is calculated using the formula PV = FV / (1 + r)^n. Plugging in the values, PV = 1500 / (1.04)^5 = 1,232.89. You would prefer $X today if it is greater than this present value.

Imagine That Someone Offers You $X Today or $1,500 in 5