Your brother has offered to give you either $50,000 today or $100,000 in 9 years

Question

Your brother has offered to give you either $50,000 today or $100,000 in 9 years. If the interest rate is 6% per year, which option is preferable? The present value of the future amount (amount received in 9 years) is S Which option is preferable? (Select the best choice below.) (Round to the nearest dollar.) O A. Take the present amount offered because it is less than the future amount. O B. Take the future amount because it is greater than the amount offered today. O C. Take the present amount offered because it is greater than the present value of the future amount. O D. Take the future amount because it is twice as much as the amount offered today in present value terms.

Explanation / Answer

Option 1:

$50,000 today.

Present Value = $50,000

Option 2:

$100,000 in 9 years.

Annual Interest Rate = 6%

Present Value = $100,000 / 1.06^9
Present Value = $59,190

Take the future amount because it is greater than the amount offered today.

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