Answer to Question #230427 in Finance for Jeff

Question

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?

Answer 1

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%