Answer:
We should accept offer 2 because the amount <u>today</u> is higher than offer 1.
(offer 1 is $89,500, offer 2 is 91305)
Explanation:
To get the right answer we have to compare the 2 offers in the same moment of time. We use interest formula to bring the future amount to this moment.
First offer is for $89,500 today
Second offer is $35,000 today and $70,000 in two years discount rate is 11.5.
The formula of interest is A=P (1+r)ⁿ
A=Final amount
P= Principal ( deposit)
r= interest rate
n= time
We know A, r and n
Looking for P,
then P= A/(1+r)ⁿ
P= 70000/(1+0,115)²
=56305
Offer 2 is =35000+56305=91305