Indifferent between choices if risk-free rate of interest

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1) You have $250 in one of your bank accounts. You have two choices: withdraw it or leave it for a year. How much money must you receive one year from now to be indifferent between the choices if the risk-free rate of interest (rf) is 6% ?

2) Your mom is thinking of retiring. Her retirement plan will pay her either $250,000 immediately on retirement (which she will put in a fixed deposit in a bank for five years) or $350,000 five years after the date of her retirement. Which alternative should she choose if the interest rate is:

a. 0% per year?

b. 8% per year?

c. 20% per year?

3) Owen expects to receive $20,000 after one year from a trust fund (this is his only source of income). If a bank loans money at an interest rate of 7.5%, how much money can he borrow today?

Reference no: EM131841234

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