Ian is going to receive $20,000 six years from now.Sunny is going to receive $20,000 nine years from now.Which one of the following statements is correct if both Ian and Sunny apply a 7 percent discount rate to these amounts?
A) The present values of Ian and Sunny's monies are equal.
B) In future dollars,Sunny's money is worth more than Ian's money.
C) In today's dollars,Ian's money is worth more than Sunny's.
D) Twenty years from now,the value of Ian's money will be equal to the value of Sunny's money.
E) Sunny's money is worth more than Ian's money given the 7 percent discount rate.

Question

Quizplus · Accepted Answer

The present value of Ian's money can be calculated by using the formula PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the discount rate, and n is the number of years. Plugging in the values, we get PV = 20,000 / (1 + 0.07)^6 = $13,426.04. Similarly, the present value of Sunny's money can be calculated as PV = 20,000 / (1 + 0.07)^9 = $12,039.17. Therefore, Ian's money is worth more than Sunny's money in today's dollars. Hence, the correct option is C.

Ian Is Going to Receive $20,000 Six Years from Now