Answer:
The value today for the $200 to be received in 10 years is $102 and the value today for the $300 to be received in 20 years is $78. So, the $200 to be received in 10 years represents a higher value today.
Explanation:
You have to calculate the present value in both cases using the following formula:
PV=FV/(1+i)^n
PV=present value
FV=future value
i=interest rate
n=number of periods of time
-$200 to be received in 10 years:
PV=200/(1+0.07)^10
PV=200/1.07^10
PV=200/1.97
PV=102
-$300 to be received in 20 years:
PV=300/(1+0.07)^20
PV=300/1.07^20
PV=300/3.87
PV=78
The present value indicates the value today for a specific amount in the future. In this case, the value today for the $200 to be received in 10 years is $102 and the value today for the $300 to be received in 20 years is $78. So, the $200 to be received in 10 years represents a higher value today.
