Carlos expects to receive $10,000 five years from now. Carlotta expects to recei

Question

Carlos expects to receive $10,000 five years from now. Carlotta expects to receive $10,000 three years from now. Which one of the following statements is correct if both Carlos and Carlotta apply a 6 percent discount rate to these amounts? The present values of Carlos' and Carlotta's monies are equal In future dollars, Carlotta's money is worth more than Carlos' money. In future dollars, Carlos' money is worth more than Carlotta's money. In today's dollars, Carlos' money is worth less than Carlotta's money. Twenty years from now, the value of Carlos' money will be equal to the value of Carlotta's money.

Explanation / Answer

Both Carlos and Carlotta are recieving same amount but at different periods. With Carlos recieving the money in 5 years, the present value of Carlos will be lower than Carlotta who is recieving funds after 3 years.

PV for Carlos= 10000/(1.06^5)=7472.58

PV for Carlotta=10000/(1.06^3)=8396.19

so both in present or future Carlotta will be ahead of Carlos.

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