The market interest rate is 9 percent and is expected to stay at that level. Consumers...
The market interest rate is 9 percent and is expected to stay at that level. Consumers can borrow and lend all they want at this rate. Would you prefer a $150 gift today or a $155 gift next year? You would ▼______ .(prefer the gift today/ prefer the gift next year /be indifferent .)
What if the interest rate were 15 percent? If the interest rate were 15 percent, then you would ________▼ (prefer the gift today/ prefer the gift next year /be indifferent .)
Homework Answers
Present value of $150 gift today = $150
Present value of $155 gift next year = 155/1.09 = 142.20
So, you would prefer the gift today.
If interest rate were 15 percent,
PV of $150 gift today = $150
PV of $155 gift next year = 155/1.15 = 134.78
So, you would prefer the gift today.
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The market interest rate is 9 percent and is expected to stay at
that level. Consumers...
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