You are romantically interested in Chris, but have always wanted to date the president of the Economics
Question:
a. Calculate the net present value of building a relationship with Chris today. Notice that the costs of kindling a relationship today are certain, but the benefits are uncertain.
b. Considering only your answer to (a), should you initiate a relationship with Chris at this time? Assume you are risk-neutral in formulating your answer.
c. Calculate the net present value of waiting until the presidency is decided to build a relationship with Chris. Note that both the costs and benefits of kindling a relationship are uncertain at this point, but that the two will be certain in one year.
d. Based on your answers to both (a) and (c), should you initiate a relationship with Chris today, or should you wait to initiate the relationship until the presidency is determined?
Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
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Related Book For
Microeconomics
ISBN: 9781464146978
1st Edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson
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