Alicia Is Considering Two Offers-To-Purchase That She Has Received on a Residential

question 245

Essay

Alicia is considering two offers-to-purchase that she has received on a residential building lot she wishes to sell. One is a cash offer of $145,000. The other offer consists of three payments of $49,000-one now, one in six months, and one in twelve months. Which offer has the larger economic value if Alicia can earn 4.4% compounded quarterly on low-risk investments? How much more (in current dollars) is the better offer worth?

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Definitions:

Sensitization

The process of becoming more sensitive to a particular stimulus over time, often as a result of repeated exposure.

Readiness

A state of being fully prepared or in a suitable condition for an immediate action or use.

Fixed Action Pattern

An instinctive behavioral sequence that is relatively invariant within the species and almost inevitably runs to completion once initiated.

Dishabituation

The renewal of a response, previously habituated, following a change in stimulus.