In this article we solve Question 5 of the compound interest quiz.

Question

On your birthday your rich uncle offers you two choices. In the first option, he offers to give you GHC 10,000 on that day. In the second option, he offers to give you GHC 1,000 that day and every subsequent birthday for the next 20 years. Which option would you choose and why?

Solution

The answer to this question depends on the rate of return you can get by investing the money you receive. If the rate of return you can get is 10%, for example, then by taking the GHC 10,000 now, you can invest it and earn GHC 1,000 every year just like your uncle would have given you under the second option.