Tiara was given a choice between $1000 today and $1100 in one year. Tiara chose to take the $1000 today. This suggests that Tiara's implicit discount rate is ______ and therefore, her discount factor is ______.

Question

Quizplus · Accepted Answer

Tiara's choice of $1000 today over $1100 in a year suggests she values the present money more than the future money, implying an implicit discount rate greater than 10% (since $1100 is 10% more than $1000). The discount factor, which is used to calculate the present value of future money, would be less than 0.91 because a higher discount rate decreases the present value, making the future $1100 worth less than $1000 today in her valuation.

Tiara Was Given a Choice Between $1000 Today and $1100