Peter received a six month post dated check for 100,000 (the check can only be cashed after six months) he offers it to a friend for 92,000 .His friend's money is presently earning 10% compounded monthly.If there is 20% withholding tax on interest ,which is better option for the friend?? Why?? Please show the solution

Question

Peter received a six month post dated check for  100,000 (the check can only be cashed after six months) he offers it to a friend for 92,000 .His friend's money is presently earning 10% compounded monthly.If there is 20% withholding tax on interest ,which is better option for the friend?? Why?? Please show the solution

Steve · Answer

in 6 months, the 92000 will be worth

92000 * (1+.10/12)^6 = 96696.90
lop off 20% of the interest (4696.90) for taxes, he is left with 95757.02

Looks like he'll be better off waiting for the $100K in 6 mo.