Based on response to 3-5 Finance questionbelow, provide comments to the response

Question

Based on response to 3-5 Finance questionbelow, provide comments to the response.

3-5. Suppose the risk free interest rate is 4%.a. Having$200 today is equivalent to having what amount in one year? B)Having $200 in one year is equivalent to having what amount today? C) Which would you prefer and why?

Response:

A) $200 * 1.04 = $208
B) $200 = x * 1.04 = 200/1.04 = $192.31
C) The difference between $200 and $208 1 year from now is $8. Thedifference between $200 and 192.31 today is $7.69. I would ratherhave $200 today than 192.31 today because you would earn $.31 more1 year from now with $200.

Explanation / Answer

Having $200 in one year is equivalent to 192.31 today. This is less than$200. Iwould prefer $200 today.

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