Suppose you are offered the alternative of receiving either $2,007 at the end of five years or $1,500 today. There is no question that the $2.007 will be paid in full (i.e., there's no risk of nonreceipt). Assuming that the money will not be needed in the next five years, you would deposit the $1.500 in an account that pays i% interest. What value of i would make you indifferent to your choice between $1.500 today and the promise of $2,007 at the end of five years?

Suppose you are offered the alternative of receiving either $2,007 at the end of five years or $1,500 today. There is no question that the $2.007 will be paid in full (i.e., there's no risk of nonreceipt). Assuming that the money will not be needed in the next five years, you would deposit the $1.500 in an account that pays i% interest. What value of i would make you indifferent to your choice between $1.500 today and the promise of $2,007 at the end of five years?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 8EB: You put $600 in the bank for 3 years at 15%. A. If Interest Is added at the end of the year, how...

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