The Interest Rate Is 10% and Will Remain So Forever

question 20

Multiple Choice

The interest rate is 10% and will remain so forever.You do not drink wine but are interested in buying some for investment purposes.Assume that there are no transactions costs or storage costs and that a certain bottle of wine will be worth $55 one year from now, $58 two years from now, and $64 three years from now.After that it turns to worthless vinegar.How much should you be willing to pay for a bottle? (Pick the closest answer.)

• A)$47.93
• B)$53.12
• C)$48.08
• D)$50
• E)$57.08

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Definitions:

Crystalline Lens

The transparent, flexible structure behind the iris of the eye that helps to focus light on the retina, allowing for clear vision.

Cataract

A medical condition where the lens of the eye becomes progressively opaque, resulting in blurred vision.

Refracting

The bending of light as it passes through one medium to another, which is a principle used in lenses to correct vision.

Visual Impairment

A decrease in the ability to see to a significant extent, not fixable by usual means such as glasses.