Answer to Question #230427 in Finance for Jeff

Question #230427
You are given a choice of receiving $100 now or $200 in 10 years. What would the discount rate be for you to be indifferent between the two options?
1
Expert's answer
2021-09-02T10:45:37-0400

ANSWER

Discount rate = 34.93%

SOLUTION

We need the discount rate, i, such that $100 years now will yield an equivalent to $200 in 10 years time.

This follows that, Future Value (FV) after 10 years = $200 and the Present Value (PV) = $100.

The following calculations, therefore, hold:



Thus, the discount rate required is 34.93%


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