You are given the choice of receiving $100 today or $115 one year from today. What annual interest rate will make you indifferent between these two choices?

Question

Quizplus · Accepted Answer

The correct answer is found by calculating the interest rate that would make $100 grow to $115 in one year. Using the formula for simple interest, $FV = PV(1 + r)$, where $FV$ is the future value ($115), $PV$ is the present value ($100), and $r$ is the rate, we solve for $r$ to find that $r = 0.15$ or 15%.

You Are Given the Choice of Receiving $100 Today or $115