Can someone please help

the first option

Step-by-step explanation:

Frank should have used 1.2 not 0.2 in the equation .

because its like the future value formula is FV=PV(1+i)n, where the present value PV increases for each period into the future by a factor of 1 + i. 

So, why do we add 1 to i?

When we look at most alternative rates of return, they are almost universally less than 100%. It is very difficult to make 100% on an investment over long periods of time. You would REALLY have to know what you are doing. Typically, most “alternative” rates of investment will be under 10%. So, that means that when you multiply a number that is less than 1 by itself repeatedly, it gets smaller and smaller quite rapidly.

Let’s look at what happens when we use a return of 0.06 or 6%.

For just two time periods, 0.06 * 0.06 would produce 0.0036! This is a number which is VERY much smaller, by over an order of magnitude! It is not very helpful to our cause.

Adding 1 to the alternate rate of return stabilizes the number.

1.06 * 1.06 = 1.0036 No matter how many times you perform the multiplication, (for a larger number of time periods), you thus still have a number that is “close” to 1. We then later use this as a divisor, so, the numerator is nearly, but not quite, unchanged. The tiny, leftover fractional part gives us the ability to differentiate between various investments, while keeping things on an even keel.

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