March 27, 2017

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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?

  • FINANCE - ,

    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%)

  • FINANCE - ,

    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.

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