The value of land in Manhattan was around $150 billion in 2008. Imagine that it is 1626 and you are the economic adviser to the Dutch when they are considering whether to buy Manhattan from the Manhasset Indians. Further, assume that the relevant interest rate for calculating the present value is 4 percent per year.
Would you advise the Dutch that a purchase price of$24 is a good deal or not? How would your answer change if the interest rate were 6 percent? 8 percent?