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9 February, 23:20

Suppose the interest rate is 4.3 %. a. Having $ 400 today is equivalent to having what amount in one year? b. Having $ 400 in one year is equivalent to having what amount today? c. Which would you prefer, $ 400 today or $ 400 in one year? Does your answer depend on when you need the money? Why or why not? a. Having $ 400 today is equivalent to having what amount in one year?

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  1. 9 February, 23:49
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    Answer: a. $417.2. b. $383.51. c. $400 today.

    Explanation:

    a. Present value = $400

    Interest rate = 4.3%

    Future value = PV (1+r) ^n

    = 400 (1+0.043) ^1

    = 400 (1.043)

    = $417.2

    b. FV = $400

    PV = Unknown

    Interest = 4.3%

    Future value = PV (1+r) ^n

    400 = PV (1+0.043) ^1

    400 = PV (1.043)

    PV = 400/1.043

    PV = $383.51

    c. I'll prefer $400 today.

    My answer does not depend on me needing money presently, I can actually invest the $400 today and get more value when it's a year. I'll have made more than $400.
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