Would you go for short term cash?

Former_MSE_Natasha

Poll Started 15 May 2007: Would you go for short term cash?

Imagine you've just won a bank's competition (hopefully without having to dial a premium rate!). You're offered a choice of prizes all with a cast iron guarantee that it'll be paid out. Which of the following options would you pick?

A. £100 in cash now
B. £150 paid to you in six months
C. £200 in a year
D. £400 in five years
E. £1,000 in ten years

Click reply to discuss or vote here.

meerustar

A. £100 in cash now.

There are no guarentees in life - I could get run over by a bus or the bank could go bump so I'd take the money ...............and run

reehsetin

c, £200 in a year
A even with interest you couldnt double in a year
and too impatient to wait longer than that

dronid

C £200 in year

stogiebear

C 200 in a year... That's a good deal.

jobbingmusician

One of my theories of money is that you should act consistently, and value small amounts as you would large amounts. So in order to make a decision on this, I tried multiplying everything by 100 to see what difference it made to how I felt about things.

A. £10,000 in cash now
B. £15k paid in six months
C. £20k in a year
D. £40k in five years
E. £100k in ten years

Hmmmm. This does make things clearer for me, somehow. I tend to agree with the previous posters that I should be able to double the £20k in less than four years (the gap between receiving £20k and 40k).

teddyco

This reminds me of that old present value/future value question that my University finance professor asked the class several years ago.

Would you rather have £1,000,000 now or 1 penny for a month that would double each day? So for example, day one would be 1 penny, day two would be 2 cents, day three would be 4 cents, and so on.......

My professor was trying to get everyone thinking about 'what' money really is and represents?

Adam Smith, who wrote 'Wealth of Nations' said, "Money, is neither a material to work upon nor a tool to work with". Money, like the impartial spectator is make believe. It's a conjectural idea we have that vaguely approximates value.

foreversomeday

I'd have the £100 now because I am between jobs and I could really do with it!

dancingfairy

Hi. I've done a little table working it out with a steady interest rate. How do I post it here?

The best one seems to be £1000 in 10 years time although I couldn't work out which would be better with inflation.

DynamicArray

It all depends on the interest rate...
I hope this works:

at 5% interest
After    1yr      5yrs     10yrs
 100.00   105.00   127.63   162.89
 150.00   153.79   186.93   238.58
 200.00   200.00   243.10   310.27
 400.00     X      420.00   510.51
1000.00     X        X     1000.00

at 10% interest
After    1yr      5yrs     10yrs
 100.00   110.00   161.05   259.37
 150.00   157.66   230.83   371.75
 200.00   200.00   292.82   471.59
 400.00     X      440.00   708.62
1000.00     X        X     1000.00

at 20% interest
After    1yr      5yrs     10yrs
 100.00   120.00   248.83   619.17
 150.00   165.64   343.47   854.66
 200.00   200.00   414.72  1031.96
 400.00     X      480.00  1194.39
1000.00     X        X     1000.00

So (unless you need the money sooner) you should go for the £1000. If you're excellent at investing, the £400 becomes more appealing. You would need to get 26% return per annum for the £200 to start beating the £400.

Too much time on my hands

earthmother

I'd go for the £1000, for several reasons.

The first - any money we had right now would get swallowed up in clearing debts, but, the second reason, £100 is only 1 month's payment, so wouldn't have a significant overall effect.

The next few payments are either too close in time, or not high enough value, to have much of an effect on our lives again.

However, in 10 years time, we will have been debt free for over 8 years, and our children will be (1) about to leave school, (2) about to start exams, and (3) about to move up to secondary school - at which point our finances will most likely appreciate a small lump sum - even if it only covers spending on a small holiday (allowing for inflation - right now it would pay for a week away including spending).

However, if as another poster has considered, the figures were 10 or 100 times higher, I'd be on the instant payout like a shot, lol.