If the risk-free rate of interest (rf)is 3.5%,then you should be indifferent between receiving $1000 in one-year or:

Question

Quizplus · Accepted Answer

Using the formula for present value of a future cash flow:
Present value = Future value / (1 + risk-free rate)^time
We can calculate the present value of $1000 to be:
Present value = $1000 / (1 + 0.035)^1 = $965.00
Option B offers exactly $965.00 today, which is the same as the present value of receiving $1000 in one year. Therefore, you should be indifferent between these two options.

If the Risk-Free Rate of Interest (Rf)is 3