We appreciate your visit to A trader in Babylon offers to sell you a blanket for 20 shekels Another trader offers you the same blanket for 25 shekels but you. This page offers clear insights and highlights the essential aspects of the topic. Our goal is to provide a helpful and engaging learning experience. Explore the content and find the answers you need!
Answer :
You would be indifferent to buying the blanket for 20 shekels now or 25 shekels in one year if the interest rate is 25%. This is because the present value of the 25 shekels in one year would be equal to the 20 shekels you would pay now.
To calculate the present value of the 25 shekels in one year, we use the formula:
PV = FV / (1 + r)^n
Where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years.
Plugging in the values we have:
PV = 25 / (1 + 0.25)^1
PV = 25 / 1.25
PV = 20
So the present value of the 25 shekels in one year is equal to the 20 shekels you would pay now. Therefore, you would be indifferent to buying the blanket for 20 shekels now or 25 shekels in one year if the interest rate is 25%.
To learn more about shekel:
https://brainly.com/question/14270799#
#SPJ11
Thanks for taking the time to read A trader in Babylon offers to sell you a blanket for 20 shekels Another trader offers you the same blanket for 25 shekels but you. We hope the insights shared have been valuable and enhanced your understanding of the topic. Don�t hesitate to browse our website for more informative and engaging content!
- Why do Businesses Exist Why does Starbucks Exist What Service does Starbucks Provide Really what is their product.
- The pattern of numbers below is an arithmetic sequence tex 14 24 34 44 54 ldots tex Which statement describes the recursive function used to..
- Morgan felt the need to streamline Edison Electric What changes did Morgan make.
Rewritten by : Barada
You would be indifferent between paying 20 shekels now or 25 shekels in a year if the interest rate is 25%. If it's lower, you'd prefer to pay now, and if higher, you'd prefer to pay later.
A trader in Babylon offers to sell you a blanket for 20 shekels, and another offers the same blanket for 25 shekels with a payment deferred for one year. You would be indifferent between the two options if the value of the money you would pay later (the 25 shekels) is the same as the value of the money you would pay now (the 20 shekels). This concept involves the time value of money.
To determine when you would be indifferent, you would need to calculate the current value of the 25 shekels due in one year. If the prevailing interest rate is 25% per annum, paying 25 shekels next year is equivalent to paying 20 shekels today. If the interest rate is lower, current payment would be preferable, and if it's higher, deferred payment would be better.
