Answered: Suppose that X wants to purchase a boat…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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Suppose that X wants to purchase a boat from R. X is willing to pay up to $18,000, while R is not willing to accept any offer below $15,000. Assume that there are a finite number of negotiating rounds.

If the discount factors for R and X are d_R = 05 and d_A = 0.05, respectively, how much should X offer for the boat?

Expert Solution

Step 1

Given:

Yara (Y) is willing to offer/ pay = $18000

Rana (R) is willing to accept = not below $15000.

Finite number of negotiating rounds.

When discount sectors for R and Y are same = 0.05.

\begin{array}{rcl} Q_{Y} & = & 1 - δ_{Y} \\ = & 1 - 0.05 \\ = & 0.95 \\ Q_{R} & = & 1 - δ_{R} \\ = & 1 - 0.05 \\ = & 0.95 \end{array}

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