Level of interest rate, Econometrics

You have won a contest and are allowed to choose between two prizes. One option is to receive $200 now and another $200 a year from now. The second option is $150 now and $255 a year from now.

(i) At what level of interest rate (if any) is the present value of the two prizes identical?

(ii) If the actual interest rate is below the number you found in your answer above, which of the two options is characterized by higher present value? Explain.

Posted Date: 4/1/2013 3:48:39 AM | Location : United States

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