Concept of the time value of money states

Reference no: EM133492116

Assignment:

The concept of the Time Value of money states that a dollar today is worth more than a dollar tomorrow. This is attributable to the compounding effect, which Albert Einstein claimed was the 8th wonder of the world.

Consider the following scenario and provide a recommendation as to which course of action is most desirable.

It is March break and your friends are looking to go on vacation to a sunny destination down south. This trip is expected to cost $2,000 for an all-inclusive resort. You have just enough money in your bank account to pay for this trip.

As you are deciding on your course of action, your uncle who works for the Bank of Montreal calls you with some investment opportunities. The first investment will require $2,000 and will pay a compound interest rate of 6% over a three year period. The second investment opportunity also begins with a $2,000 investment however this provides a 10% simple interest return over the same three period.

With your understanding of the Time Value of Money and simple vs compound interest, determine which of the three courses of action would be best to take.

Also Show calculations to show which investment offers is best.

Reference no: EM133492116

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