Fundamentals of finances.

1)If you deposit $100 now (n = 0) and $200 two years from now (n = 2) in a savings account that pays 10% interest, how much would you have at the end of year 10?

Simple interest FV = PV*(1+i*n) PV = FV /(1+i*n)

Compounded interest FV= PV * (1+i)^n PV= FV / (1+i)^n

2)\You won a lottery!

You can choose whether to receive a single lump sum $70 million, or $140 million paid out over 25 years (or $5.6 million per year).

What would you choose?

Need to know value of money at different point in time

(discount rates 5% and 7%)