Suppose your rich relative promises you the choice between $20,000 today and a delayed graduation gift of a $45,000 in four years time. Assume that the interest rate is 5 per cent. *Compare the present discounted value of the delayed gift versus the immediate gift. *What is the interest rate that would equalize the present discounted value ofthe two gifts? What happens as interest rates become higher than this value?

Suppose your rich relative promises you the choice between $20,000 today and a delayed graduation gift of a $45,000 in four years time. Assume that the interest rate is 5 per cent. Compare the present discounted value of the delayed gift versus the immediate gift. What is the interest rate that would equalize the present discounted value ofthe two gifts? What happens as interest rates become higher than this value?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

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