Rate of interest between the renewal options

Reference no: EM131761023

Question: Read the following letter from a magazine publisher: Dear Parent: Currently your Growing Child/Growing Parent subscription will expire with your 24-month issue. To renew on an annual basis until your child reaches 72 months would cost you a total of $63.84 ($15.96 per year). We feel it is so important for you to continue receiving this material until the 72nd month, that we offer you an opportunity to renew now for $57.12. Not only is this a savings of 10% over the regular rate, but it is an excellent inflation hedge for you against increasing rates in the future. Please act now by sending $57.12.

(a) If your money is worth 6% per year, determine whether this offer can be of any value.

(b) What rate of interest would make you indifferent between the two renewal options?

Reference no: EM131761023

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