According to the Theory Underlying the Present-Value Formula, Would a Rational

question 65

Multiple Choice

According to the theory underlying the present-value formula, would a rational individual prefer to receive (a) $75 one year from now, (b) $85 two years from now, or (c) $90 three years from now, or would he be indifferent between all three choices? Assume that the relevant annual market interest rate is 10 percent and will remain at 10 percent for the next three years?

• A)He will prefer $75 one year from now.
• B)He will prefer $85 two years from now.
• C)He will prefer $90 three years from now.
• D)He will be indifferent between all three choices.

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Definitions:

Appraisal Value

The assessed value of an asset, typically real estate or a business, determined by a professional appraiser based on the property's condition, market trend, and comparable sales.

Market Price

The present rate at which a service or asset is available for purchase or sale in the market.

Fair Value

A measurement of the price at which an asset would be bought or sold in a current market transaction.

Ethical Dilemma

A situation in which a person is faced with multiple choices and the decision involves a conflict of ethical values.