A university decides to offer students two different tuition options. In the first, a new freshman can

Question:

A university decides to offer students two different tuition options. In the first, a new freshman can pay a one-time fixed payment of $100,000. In the second, the student would make four annual payments of $29,000 each. The university would guarantee the student that there would be no tuition increase during the four years. Assume that the first of the $29,000 payments would be due at the same time that the $100,000 would be due. If the appropriate discount rate is 6%, which option should students prefer?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...