Homework Help: Engineering Econonmy

Posted by nutz77 on Thursday, February 21, 2013 at 3:51pm.

For your 21st birthday, your grandfather offers you a gift of $1000 today.

However, you have the choice of waiting 3 years and receiving $1500 OR waiting 5 years and receiving $3000.

If your money grows at a rate of 8 percent compounded annually, which alternative should you choose?

Thank you for your help!

Engineering Econonmy - JJ, Thursday, February 21, 2013 at 3:55pm
To determine what you would have at the end of 3 or 5 years use:
The following formula works for compounded annually.
future value = P(1+r)^n

for 1500 and 3 years at 8%

1500(1+.08)^3

Do this calculation and a similar one for the 5 year period and then compare.

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