Posted by Anonymous on .
Your uncle offers you a choice of $30,000 in 50 years or $95 today. If money is
discounted at 12 percent, which should you choose?
The present discounted value of $30,000 is about $104. However, I'd still take the $95. I'll be over 100 in 50 years and, well, whats the point? (Actually, this means my own personal discount rate is more than 12%)
we have to discount the value of the future money (to compare apples to apples)
and compare what is the value of 30000 in today's money :
PV = present value
PV(30000) = 30000 / (1+0,12)^50
PV(30000) = $103.8
As PV(30000) > $95 you'd better wait 50 years.
Your age doesn't play any role in this mathematical problem.