An Acquaintance of Yours Owes You $1,000,but Only Has $800

question 37

Essay

An acquaintance of yours owes you $1,000,but only has $800 to pay you now.He says he can either give you the $800 now in full settlement of the debt,or he can give you $1,000 one year from now.If you would let him keep the money for two years,though,he would give you $1,100 at that point.You have a savings account that earns 12% interest.
a.What is the present value of the payment now?
b.What is the present value of the payment a year from now?
c.What is the present value of the payment two years from now?
d.Which option would be best for you financially?

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