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nakungth nakungth
wrote...
Posts: 1175
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7 years ago
You have won a contest and are allowed to choose between two prizes.  One prize is $200 today and another $200 one year from now.  The other prize is $100 today and an additional $325 one year from now.  At what interest rate (if any) would you be indifferent between the two prizes?
Textbook 
Microeconomics

Microeconomics


Edition: 8th
Author:
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wrote...
7 years ago
Prize 1 has PDV = 200 + [200/(I + R)]    
      Prize 2 has PDV = 100 + [365/(I + R)]       
Equating the PDV for prize 1 and prize 2 and solving for R yields:
      200 + [200/(l + R)] = 100 + [365/(l + R)]
      R = 0.25
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