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6. A business allows customers to pay with a credit card or with cash. If paid with cash, the customer receives a discount of 100r%, where 0

6. A business allows customers to pay with a credit card or with cash. If paid with cash, the customer receives a discount of 100r%, where 0

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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6. A business allows customers to pay with a credit card or with cash. If paid with cash, the customer receives a discount of 100r%, where 0 <r < 1. If paid with credit card, the business will not receive the funds until one month later. Also at that time, the business receives only 98% of the original purchase price. A customer makes a purchase of amount P. If the present value of the cash and credit card payments are equal so that the business is indifferent about which payment option the customer chooses, what is r? Assume a nominal interest rate of 12% convertible monthly.
Transcribed Image Text:6. A business allows customers to pay with a credit card or with cash. If paid with cash, the customer receives a discount of 100r%, where 0 <r < 1. If paid with credit card, the business will not receive the funds until one month later. Also at that time, the business receives only 98% of the original purchase price. A customer makes a purchase of amount P. If the present value of the cash and credit card payments are equal so that the business is indifferent about which payment option the customer chooses, what is r? Assume a nominal interest rate of 12% convertible monthly.
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