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When you purchase a new washing machine for $300, you automatically get a 1-year warranty on the ...

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When you purchase a new washing machine for $300, you automatically get a 1-year warranty on the ...

When you purchase a new washing machine for $300, you automatically get a 1-year warranty on the washing machine. When you get to checkout, you are offered a two-year extended warranty that will recover the costs of replacing your washing machine. Suppose that if your washing machine breaks down in year two, comparable washing machines cost $270 and if your washing machine breaks down in year three, comparable washing machines cost $240. Each year there is a 5 percent chance that your washing machine will break down. You buy the washing machine on a credit card that has a 12 percent interest rate. How much are you willing to pay for the extended warranty?
Please round your final answer to two decimal places.

▸ $7,776.00

▸ $25.50

▸ $19.30

▸ $0.00

Textbook

Macroeconomics

Edition: 3^rd

Authors: Acemoglu, Laibson, List

Read 44 times

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tacobeo Author

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Smart ... Thanks!

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