1. Suppose your rich relative promises you the choice between $30,000 today and a graduation gift of a $45,000 in four years time. Assume that the interest rate is 10 per cent. a. Compare the present discounted value of the delayed gift versus the immediate gift. (10 points) b. What is the interest rate that would equalize the present discounted value of the two gifts? What happens as interest rates higher than this value? (10 points)
1. Suppose your rich relative promises you the choice between $30,000 today and a graduation gift of a $45,000 in four years time. Assume that the interest rate is 10 per cent. a. Compare the present discounted value of the delayed gift versus the immediate gift. (10 points) b. What is the interest rate that would equalize the present discounted value of the two gifts? What happens as interest rates higher than this value? (10 points)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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