Suppose a wealthy individual approaches you and says, “Because of your outstanding ability to manage money, I am prepared to present you with a tax-free gift of $1,000. If you prefer, however, I will postpone the presentation for a year, at which time I will guarantee that you will receive a tax-free gift of $X.” (For purposes of this example, assume that the guarantee is risk-free.) In other words, you can choose to receive $1,000 today or receive $X 1 year from today. Which would you choose if X equals (1) $1,000, (2) $1,050, (3) $1,100, (4) $1,500, (5) $2,000, (6) $5,000, (7) $10,000, (8) $100,000? Suppose the student is guaranteed to receive $1,100 one year from today, and nothing thereafter, if $1,000 is invested today in a particular venture. What is the return on the student’s investment?
Suppose a wealthy individual approaches you and says, “Because of your outstanding ability to manage money, I am prepared to present you with a tax-free gift of $1,000. If you prefer, however, I will postpone the presentation for a year, at which time I will guarantee that you will receive a tax-free gift of $X.” (For purposes of this example, assume that the guarantee is risk-free.) In other words, you can choose to receive $1,000 today or receive $X 1 year from today. Which would you choose if X equals (1) $1,000, (2) $1,050, (3) $1,100, (4) $1,500, (5) $2,000, (6) $5,000, (7) $10,000, (8) $100,000? Suppose the student is guaranteed to receive $1,100 one year from today, and nothing thereafter, if $1,000 is invested today in a particular venture. What is the return on the student’s investment?
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