3. Calculate the present value of the following sequence of willingness to pay amounts: this year,...

Question

Question

business economics

Answer 1

Answer #1

r = 5%
PV = 100 + 150/1.05 + 150/1.05² + 50/1.05³ = $ 422.1

r = 8%
PV = 100 + 150/1.08 + 150/1.08² + 50/1.08³ = $ 407.2

Present value varies inversely with the discount rate (higher discount rate means lower present value)

Answer 2

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