Question

A kind and caring politician offers to pay you $500 million in 300 short years. Because this politician is from the political party you vote for, you believe that the amount will be paid with certainty.
a. How much is this promise worth today if the appropriate discount rate is 10%?
b. How much is this promise worth today if the appropriate discount rate is 0%?
c. Explain why your answer to B, while mathematically correct, does not make sense in reality. In your (short) answer, include 2 reasons why interest rates arepositive.


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  • CreatedAugust 05, 2013
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