Question

You have the choice of receiving $15,000 today or $25,000 in six years as a down payment from someone who wants to purchase your rental property. If you could expect to earn 11 percent on invested money (i.e. your time value of money = 11%), which would you choose? I would choose $15,000 today I would choose $25,000 in six years I would choose neither

Answer 1

Answer:

I would choose $15,000 today

Explanation:

Future value= $15,000

rate of interest= 11%

umber of years=  6 years

we know that $FV_n= PV(1+r)^n$

FV_n = future value of present investment

PV= Present value of investment

r= interest rate

n = number of years.

$FV_n = 15000(1+11)^6$

= $28,056.22

So, If i receive $25,000 ,after six years i would lose (28,056.22-25,000)= $3056.22 . therefore i would take $15,000 today.