Question 2. You have a choice between receiving $5,000 today or $10,000 in five years. You believe you can earn 10% annually on the $5,000 today. What would be your choice? Please construct a cash flow diagram and justify your decision.

Question 2 You have a choice between receiving $5.000 today or $10.000 in five years You believe you can eam 10% annually on the $5.000 today would be your choices? Please construct a cash flow diagram and justify your decision Answer. Always starts with the cash flow diagram. We can consider these two opoons by comparing their Psor PV for both options, the timing s years, and the interest rate 10 compounded annually. The cash flow diagram will have tw one of 5 $5.000 upward inflow (pointng upward) will be at the origin, and the other one of $ 10.000 at years, abo pointing Since both arrows are pointing upward eg flowing into our pocket, the way of thinking is whether we invest the option 's money immediately after we receive it can we get a better returnaher 5 years? if we want to compare the PVS of these two options, we will calculate the PV of the second option to go against the first option PV, Prate, per, p where rate is 10 year pre Niss meaning intermediate payment and The negative means that the PV is an oudlow Since the Through the PV macro, we can get PV, amount is larger than the first option, the second option could be a better choice We can also compare the FVS of these two options. In this case, we will calculate the PV of the first options Pate per pp where rate years and pr in this way we can get FV, s which is still less than the second option Both results indicate that we will not get the same or more worth from the first option as the second one, so we will wait for 5 years to get the second option unless we have the need of cash right now