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Finance Made Simple
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Winner Winner
Congratulations!!! You have won a cash prize! You have two payment options: A - Receive $10,000 now OR B - Receive $10,000 in three years. Which option would you choose? -
Lets Look
Choosing Option A, your future value will be $10,000 plus any interest acquired over the three years. The future value for Option B, on the other hand, would only be $10,000. So how can you calculate exactly how much more Option A is worth, compared to Option B? -
Option A
If you choose Option A and invest the total amount at a simple annual rate of 4.5%, the future value of your investment at the end of the first year is $10,450, which of course is calculated by multiplying the principal amount of $10,000 by the interest rate of 4.5% and then adding the interest gained to the principal amount:
Future value of investment at end of first year: = ($10,000 x 0.045) + $10,000 = $10,450