Betty Harris needs to decide whether to accept a bonus of $1,780 today or wait two years and receive $2,070 then. She can invest at 6 percent. What should she do? select an option                                                           YesNo, she                                                            shoudshoud not accept the bonus today.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Betty Harris needs to decide whether to accept a bonus of $1,780 today or wait two years and receive $2,070 then. She can invest at 6 percent. What should she do?

select an option                                                           YesNo, she                                                            shoudshoud not accept the bonus today.
Expert Solution
Step 1

Alternative 1:

Accept a bonus of $1,780 today

Alternative 2:

Receive $2,070 after 2 years

Interest rate=6%

We'll calculate the present value of the amount receivable after 2 years.

PV=FV×11+rnwherePV=Present valueFV=Future valuer=discount raten=number of years

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