As the top employer at your firm you are given the following choices as your end of year bonus: (assume that you will remain in that firm for 20 years) Choice A: $30,0000/year as long as you remain an employee there Choice B: $1 first year, with each subsequent double of the previous a) you should choose A if the risk-free rate is 0% b) you should choose B if the risk-free rate is over 10% c) at what interest rate would you be equally happy with the two options?

As the top employer at your firm you are given the following choices as your end of year bonus: (assume that you will remain in that firm for 20 years) Choice A: $30,0000/year as long as you remain an employee there Choice B: $1 first year, with each subsequent double of the previous a) you should choose A if the risk-free rate is 0% b) you should choose B if the risk-free rate is over 10% c) at what interest rate would you be equally happy with the two options?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

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