Question 1160256
he can get 80,000 today or 100,000 two years from now.
the prevailing interest rate he can earn on the money he receives today is 12% per year.
the formula to use is f = p * (1 + r) ^ n
f is the future value
p is the present value
r is the interest rate per time period
n is the number of time periods.
use this formula to see how much he would have in two years if he took the 80,000 today.
the formula becomes f = 80,000 * (1 + .12) ^ 2 = 100,352.
he should take the 80,000 today and invest it at 12%.
he'll have more than 100,000 in two years, but not by much.
still, it's more, so that's the way to go.
if the money he invests today is invested at 12% compounded monthly, then he'll have even more.
with monthly compounding, the formula becomes f = 80,000 * (1 + .12/12) ^ (2 * 12) = 101,578.7719.
that makes taking the 80,000 today and investing it at 12% more compelling.