If the risk-free rate of interest (rf) is 6%, then you should be indifferent between receiving $250 today or

Question

Quizplus · Accepted Answer

Using the formula for present value, PV = FV / (1 + r), where PV is the present value, FV is the future value, and r is the interest rate, we can calculate the present value of each option:

- Choice A: PV = $250 / (1 + 0.06) = $235.85
- Choice B: PV = $265 / (1 + 0.06) = $250.00
- Choice C: PV = $235.85 / (1 + 0.06) = $222.72

Since the risk-free rate of interest is 6%, the present value of receiving $250 in one year is $235.85. Therefore, you should choose option B, which offers a higher present value of $250.00.

If the Risk-Free Rate of Interest (Rf) Is 6%, Then