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Annual risk-free rate

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Reference no: EM131979754

Someone is going to give you money because you are awesome! They have given you three choices:

Option A - They will give you $205 today.

Option B - They will give you $225 in 2 years.

Option C - They will give you $75 today, $50 in 1 year, and $90 in 2 years.

  1. The risk-free rate is 4%. Which option should you choose (for the highest present value)?
  2. The 1 year annual risk-free rate is 4% and the 2 year annual risk-free rate is 6%. Which option should you choose (for the highest present value)?

Please show formulas

Reference no: EM131979754

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