The private entrepreneur owns $ 3,000. He is having two options: put money in the bank at 8% per year for 2 years, or keep them at home (the discount rate is 10%) because these funds are temporarily not used in business (the business produces a 10% return on investment).Task:determine the amount accumulated at the end of the period in first case, make calculations using the methods of simple and complex interestDetermine the current value of $ 3000 in 2 years at a discount rate of 10%Justify the advantages and disadvantages of each solution.

Findings from the question: Amount to be deposited in bank = $3,000 (Principal) Interest rate = 8%/…

Answered: The private entrepreneur owns $ 3,000.…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 26P

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The private entrepreneur owns $ 3,000. He is having two options: put money in the bank at 8% per year for 2 years, or keep them at home (the discount rate is 10%) because these funds are temporarily not used in business (the business produces a 10% return on investment).

Task:

determine the amount accumulated at the end of the period in first case, make calculations using the methods of simple and complex interest
Determine the current value of $ 3000 in 2 years at a discount rate of 10%
Justify the advantages and disadvantages of each solution.

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