You have a choice between 5,000 now and 20,000 after 10 years. Which would you choose? What does you

You have a choice between 5,000 now and 20,000 after 10 years. Which would you choose? What does your preference indicate?

 

If PV of 20000 is greater than 5000....at expected rate of return is more than 5000 then select 20000 option.

 

This is bookish answer...in practical...what you are going to do with that 5000...matters.

 

Give the rate of interest.Only then it could be worked out by determi9ning the time value of money

 

For practical purpose ...if rate of interest is not give ....then GSec 10 years yeild is taken.

 

PV =FUTURE CASH FLOW/(1+r)n..So PV=20000/10=2000..SO, it is worth having 5000 today...(if you are earning nothing from that money i. e. 2000/-)

 

This is present value for future money taking interest rate zero though not mentioned in question and number of years 10

 

Today's money is the best option due to following reason 1) inflation 2)people mostly prefer present consumption over future so demand for money is high for present .3)uncertainty. Lame one but there is real logic behind uncertainty, who knows we will live long to have that money .