I have an investment problem as follows: If money can earn 8% per annum compounded annually, what is worth more: $600,000 now or one milion dollars ten years from now?
The formula is given: P = A(1+i)^-n
from the book this formula gives the present amount P dollars that will acumulate to A dollars over a period of n years when earning interest at an annual rate i ( i is expressed as a decimal, our rate 8%, then i = 0.08)
I read this over a few times and would like to make sure I understand what the question is asking me.
This is my train of thought: $600,000(1+.08)^(+10)
This gives me 1, 295,354.998 actually the calculator did the work, I just plugged in the numbers.
But I am not sure if I am answering the question. If I use the equation given it is clear that $600,000 now is worth more, but This is a word problem and at first glance $600,000 now and $1,000,000 ten years from now, I guess I am supposed to use the equation or why else would it be given. I am sure I am making more out of this than I am. I guess I need to do a few of these to understand what is being asked. Please let me know when you have time.