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Assume that you have a rich uncle who dies and in his will he leaves you with the following option You can have 100K today or 200K in 10 years Interest rates are 10 percent which should you choose?


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2006-07-07 19:05:21
2006-07-07 19:05:21

If you can exercise restraint and not touch the money for the 10 years, take the money now, invest at 10% simple interest, compounded annually and you'll have much more than doubled the money in 10 years. Year 1: $100,000 + 10% = %110,000. Year 2: $110,000 + 10% = $121,000. Year 3: $121,000 + 10% = $133,100. Year 4: $133,100 + 10% = $146,410. Year 5: $146,410 + 10% = $161,051. Year 6: $161,051 + 10% = $177,156.10. Year 8: $177,156.10 + 10% = $194,871.71. Year 9: $194,871.71 + 10% = $214,358.88. Here you are at year 9, more than was to be offered if you took the uncle's offer of year 10, and you can still add another 10% to the total. If you're certain that you would actually leave the money for investment, you'd come way out ahead taking half as much now and let the bank pay YOU interest. If you're not so confident regarding your restraint, perhaps you should leave it and take the $200,000 in ten years. A bird in the hand is worth two in the bush. Take the money now.

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