Imagine that you are a completely risk indifferent investor. A client would like to pay you and gives you two options how they would be willing to pay. 1. An immediate payment of $50,000 2. A monthly payment of $3,000 over the next four years. You believe that the interest rate over the next four years will be 6%. Which option do you prefer? One of your advisors thinks that it will be rather 8%, while another one calculates it in a more conservative way and expects rather 4%. Would following one of them change your decision? In which way?

Imagine that you are a completely risk indifferent investor. A client would like to pay you and gives you two options how they would be willing to pay. 1. An immediate payment of $50,000 2. A monthly payment of $3,000 over the next four years. You believe that the interest rate over the next four years will be 6%. Which option do you prefer? One of your advisors thinks that it will be rather 8%, while another one calculates it in a more conservative way and expects rather 4%. Would following one of them change your decision? In which way?

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 4.8P

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