Assuming the interest rate is positive and constant over the next 10 years, when should he prefer to receive t?

An investor is given the opportunity to invest money today and receive $10,000 either 5 years from now or 10 years from now. Assuming the interest rate is positive and constant over the next 10 years, when should he prefer to receive the money? Why?|||Recall the formula for the present value of a single cash flow at the end of period t:





PV = x*(1+i)^-t, where:





PV = present value


x = cash flow at time t


i = effective periodic interest rate (expressed as a decimal, not a percent)








Assuming that i%26gt;0, (1+i)^-t decreases as t increases. Therefore, the PV of a given cash flow at time t decreases as t increases. In other words, the required investment at time 0 in order to get a cash flow at time t gets smaller as the cash flow gets later. Therefore, the investor would prefer to get the $10,000 in 10 years, rather than 5 years.





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