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Chapter 5: Q. 52 (page 325)

Comparing Two AlternativesSuppose that April has access to an investment that will pay 10% interest compounded continuously. Which is better: to be given \(1000 now so that she can take advantage of this investment opportunity or to be given \)1325 after 3 years?

Short Answer

Expert verified

April is better to get$1000to take advantage.

Step by step solution

01

Step 1. Given Information

Suppose that April has access to an investment that will pay 10% interest compounded

continuously.

The problem asks to find Which is better: to be given $1000 now so that she can take advantage of this investment opportunity or to be given $1325 after 3 years?

02

Step 2. Finding amount in April

P=$1000r=10%=0.01t=3years

role="math" localid="1646326690319" A=PertA=1000脳e0.1脳3A=$1349.86

03

Step 3. Comparing the amount

SinceA=1349.86>$1325for April is better to get $1000 now.

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