You are considering installing new windows into your home which are more energy efficient. You estimate that the windows will save you $100 dollars a month in energy costs over the next 15 years. It will cost $15,000 to replace the windows?

You can borrow or save at a monthly rate of 25%:

1) If you were only considering the heating costs (not the environment or aesthetics), should you replace the windows?

2) Now imagine you are able to borrow and save at a monthly rate of .1%. Should you replace the windows?

3) Explain why the decision to buy the windows changes when the interest rate is lower?