An investor can sell a bottle of wine today for 7000 or put

An investor can sell a bottle of wine today for $7,000 or put it in storage and sell it in 30 years for $20,000. If the interest rate is expected to remain constant at 4%, what should the investor do?

Solution

The present worth of the second option is:

PW = 20,000(P/F, 4%, 30)

= 20,000(0.3083)

= $6,166

Since the present worth of selling the bottle of wine after 30 years is less than selling it now, the investor should sell it now.