This theme can be a bit 'boring to play, so I made a little role', so do not put to sleep. Let's just reading this I'll give you $ 100. Sounds good right? But I also tell you there is a catch. You have to get between options A and B do not choose to know the details of one of them, and must choose, or simply to touch. Let's see how to play your decisions. Oh, you've decided to take option A. Now, I can say about the option A.
Option A requires thatTo invest the money in an account that pays a 5% annual interest. It is necessary to invest the $ 100 for 3 years. They started after the age of 3, you can do as you want with the money. This raises the question, did make the right decision going with option A over option B is the unknown? Now let's look a little 'deeper option A, B. Option Now, before investing the money that would be no day on a time axis. The next steps on the time axis are 1 for 1 year, 2 for 2 years, and3 for 3 years. From now until the end of year 1 would increase your $ 100 from $ 5. That is the reason that $ 100 (1 + .05) = $ 100 (1.05) = $ 105 After one year you made $ 5, so as not to shabby. Here is the current formula, if you ever need; FV1 = PV + INT = PV + PV (I) PV (1 + i) At the beginning of 1st year 2nd year you're going in with more than $ 5 to ' off last year. We would like to just follow the formula again to see what our next payment at the end of the year is $ 2 100 (1.05) 2 = $ 110.25 FV1 = PV+ PV = PV + INT (I) PV (1 + i) 2 Now at the end of Year 2 you have done more than 10.25 originally started with this, we will continue for another year, $ 100 (1.05 ) 3 = $ 115.76 FV1 = PV + INT = PV + PV (I) PV (1 + i) 3, you can also use a calculator, Texas Instruments BAII is also a good compromise. They simply connect to this computer and have it work for you, 3 = N I / YR = 5 PV = -100 PMT = 0 Then you would be charged for future value, which would be $ 115.76. With your option at $ 100turned into $ 115.76. I know that can not be a large sum, however, know the higher the present value of payments is higher end. But wait, you have decided to take option B
The terms of option B are fairly simple. Do what you want with the money to invest out of it. Now, this would be the emotional side of your mind a boost and instant gratification. But your rational side is time to think about it, if you have a little 'patience might actually have more money in a fewYears. The reality is, you'll end up with less the present value of $ 100 in 3 years, not only the interest earned. Here's how it would play at the end of the first year of $ 100 would be reduced to $ 95. Take the above formula, then the interest rate is a negative number and the present value of positive numbers at the end of the second year your $ 100 would be reduced to $ 90.25. At the end of the third year your $ 100 would be reduced to $ 85.74. Time and a little 'interest is also useful if you can keepoff and put some money working for you. You will pay the first in this sense is a great way to save money to invest, and position themselves a little 'closer to financial freedom on the road.
