Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
You do an experiment in which you offer participants $500 today or a different amount in the future. A participant tells you that they would be indifferent between receiving $750 4 years from now and $500 today. What is their (exponential) discount rate according to this experiment?
Expert Solution
Step 1
Discount Rate:
- It is the rate that computes the present worth of the cash flows in the future.
Information Provided:
- Term = 4 years
- Amount to be received = $750
- Present value = $500
Step by step
Solved in 3 steps
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