George is offered an investment option by his friend. He asks George for $6,900 and offers to repay him $12,990 after a period of ten years
George considers investing his money in his friend's project; however, the bank in his community offers an annual rate of interest of 9% on every deposit. Which do you think is the better investment option for George?
To compare between the two investments, it is necessary to calculate the required principal to be deposited in the bank at 9% rate of interest for ten years to generate $12,990.
The present value of $12,990 at 9% rate of interest is $12,990/(1.09 )10 = $5,487.12.
Hence, if the rate of interest is 9%, the sum of $12,990 can be earned by depositing approximately $5,488 in the bank for ten years.
Because George needs to invest a smaller amount of money to generate the same return from the bank, investing in the bank is a better option for him.
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The Federal Reserve System
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a. long-term economic growth. b. short-term economic growth. c. business cycle fluctuations. d. the labor force participation rate of married women.
Assets that a company might not be able to convert to cash quickly but that still have significant value (e.g., factory building, real estate, machinery) are known as
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