Peter and Reesa can book their Horizon Holiday package at the early-booking price of $3,850, or wait four months and pay the full price of $3,995.
a) Which option should they select if money can earn a 5.25% rate of return? In current dollars, how much do they save by selecting the preferred option?
b) Which option should they select if money can earn a 9.75% rate of return? In current dollars, how much do they save by selecting the preferred option?
c) At what interest rate would they be indifferent between the two prices?

Question

Quizplus · Accepted Answer

The Answer of Peter and Reesa can book their Horizon Holiday package at the early-booking price of $3,850, or wait four months and pay the full price of $3,995.
a) Which option should they select if money can earn a 5.25% rate of return? In current dollars, how much do they save by selecting the preferred option?
b) Which option should they select if money can earn a 9.75% rate of return? In current dollars, how much do they save by selecting the preferred option?
c) At what interest rate would they be indifferent between the two prices?

Peter and Reesa Can Book Their Horizon Holiday Package at the Early-Booking