Nick has a choice to pay $1499 for a TV now or pay $1599 3 years from now. What should be the minimum interest rate at which Nick should invest $1499 to make a decision to pay 3 years from now?

Question

Quizplus · Accepted Answer

We need to find the minimum interest rate at which the investment of $1499 will grow to $1599 in 3 years. This can be found using the formula:

FV = PV x (1+r)^n

where FV is the future value, PV is the present value, r is the interest rate, and n is the number of periods.

Substituting the values we have:

1599 = 1499 x (1+r)^3

Solving for r, we get:

r = (1599/1499)^(1/3) - 1

r ≈ 0.02176 or 2.176%

Therefore, Nick should invest at a minimum interest rate of 2.176% to make a decision to pay 3 years from now.

Nick Has a Choice to Pay $1499 for a TV