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# Present Value, Rate of Interest

1.In payment for your engineering services a client offers you a choice between:
(i) \$10000 now, or (ii) a share in the project which you are certain you will be able to cash in for \$16500 in five years.

If you choose the \$10,000 now it could be reinvested at an annual interest rate of i = 10%. Which is the most profitable choice? Show the work and values that give your conclusion.

2. We are considering the following investment proposal. If we deposit \$700 now, the end of year 0, we will receive \$4200 at the end of 10 years. What rate of interest compounded annually is being offered?

#### Solution Preview

1.In payment for your engineering services a client offers you a choice between:
(i) \$10000 now, or (ii) a share in the project which you are certain you will be able to cash in for \$16500 in five years.

If you choose the \$10,000 now it could be reinvested at an annual interest rate of i = 10%. Which is the most profitable ...

#### Solution Summary

The expert calculates the present value of payments and the interest rate.

\$2.19