Question: Suppose a consumer has a choice between the following two offers for the work done: - Offer 1: 7,000 will be invoiced today and

Suppose a consumer has a choice between the following two offers for the work done:


- Offer 1: € 7,000 will be invoiced today and € 2,310 exactly one year from now


- Offer 2: EUR 3000 will be invoiced today and EUR 6600 will be invoiced in exactly one year


Let's assume in a simplified way that:

1) there are no risks associated with receiving money;

2) inflation is 0%,

3) the consumer's choice does not affect the offers made to him in the future.

Assume that both granting and borrowing are possible, with the same interest rate for granting and borrowing.

a) Which offer would be chosen by a rational consumer if the nominal interest rate were 10%


b) Which offer would be chosen by a rational consumer if the nominal interest rate were 5%


c) Find out at what interest rate the consumer would have to choose which of the offers.

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