Suppose a relative has promised to give you $1,000 as a wedding gift the day you

Question

Suppose a relative has promised to give you $1,000 as a wedding gift the day you get engaged. Assuming a constant interest rate of 10%, consider the present and future values of this gift, depending on when you become engaged.

Complete the first row of the table by determining the value of the gift in one and two years if you become engaged today.

The present value of the gift is 5) _______ (GREATER or SMALLER) if you get engaged in two years than it is if you get engaged in one year.

te Received Present Value Value in One Year Value in Two Years (Dollars) (Dollars) (Dollars) Today 1,000.00 1)______    2)_______    In 1 year 3)_____ 1,000.00 In 2 years 4)______    1,000.00

Explanation / Answer

1_) 1000*1.1= 1100

2_) 1100*1.1= 1210

3_) 1000/1.1= 909.09

4_) 1000/1.12= 826.45

5_) SMALLER

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