You have $100 in cash. The prevailing interest rate is 20% per annum. You have two...
You have $100 in cash. The prevailing interest rate is 20% per annum. You have two investment choices: a) Project costs $100 and will return $150 next year, b) Ice Cream—and you love ice cream.The problem is you know that you will be dead next year. What should you do?
Homework Answers
If you have $100 in cash and you know that you will be dead next year; then the investment choice a) Project costs $100 and will return $150 next year; is of no use for you. Although you will get more returns (50%) than the prevailing interest rate of 20% per annum.
Investment choice b) Ice Cream could be a better choice as you love ice cream. It will give you higher utility.
For both the choices; it is assumed that you want to consume the money you have and you are not planning to gift it someone.
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