Suppose the Interest Rate Is 7 Percent

question 112

Multiple Choice

Suppose the interest rate is 7 percent.Consider four payment options:
Option A: $500 today.
Option B: $550 one year from today.
Option C: $575 two years from today.
Option D: $600 three years from today.
-Which of the payments has the lowest present value today?

• A)Option A
• B)Option B
• C)Option C
• D)Option D

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Definitions:

Gratuitous Bailment

A situation where property is voluntarily transferred into another's custody without expectation of payment.

Stradivarius

A type of high-quality stringed instrument made by members of the Stradivari family, particularly renowned violins.

Bailor

The party in a bailment who temporarily transfers possession but not ownership of a property to another party, the bailee.

Leasehold

An interest in a property that allows the holder (lessee) to use and occupy the land or premises for a specified period, under certain conditions, but does not provide ownership.