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Depending on the rate

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Reference no: EM131936448

The quote from the book, "A dollar today is worth more than a dollar a year from now", is the main premise of the Time Value of Money (TVM) principle.

Question - Is $10,000 today (Option A) better, or $1,000 today and at the beginning of each year for twelve years (Option B)? The answer seems pretty straightforward - $12,000 is better than $10,000.  But TVM takes into account the value of interest earned (or sacrificed) depending when the funds are received. The future $1,000 dollar payments will each be worth slightly less than that in today's dollars depending on the interest rate. There is a breaking point where option A is best, or option B becomes best, depending on the rate. So, what is that rate?

Reference no: EM131936448

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