Answer to Question #123024 in Financial Math for ANANI ELIAS KWESI

Question

Esther, Vida, and Clair were asked to consider two different cash flows: GH¢1000 that they
could receive today and GH¢3000 that would be received 3 years from today. Esther wanted
the GH¢1000 today, Vida chose to collect GH¢3000 in 3 years, and Clair was indifferent
between these two options. Which of the three women made the right choice? Explain

Answer 1

$1000=\frac{3000}{(1+r)^3}$

$r=44.22\%$

If interest rate more than 44.22%, Esther made the right choice. Because, if she puts this money in the bank, after 3 years she get more than 3000. If interest rate less than 44.22%, Vida made the right choice. Because, if she puts 1000 in the bank, after 3 years she get less than 3000. If interest rate equals 44.22%, Clair was right. Because anyway she get similar sum of money.