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Value of a case of wine

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You are planning to invest in fine wine. Each case costs $100 (at time 0), and you know from experience that the value of a case of wine (at time t) held for t years is 100pt. Wine is thus increasing in value over time. One case of wine is available to purchase, and the interest rate is 10 percent.

1. Should you buy it and how long should you wait to sell it (consider only integer years), and how much money will you receive at the time of its sale?

2. Suppose right after you purchase the wine, still at time t = 0, someone offers to buy it from you for $130 per case immediately. Should you take the offer?

3. How would your answers qualitatively change if the interest rate were only 5 percent? Would you still buy the wine? Would you keep it for longer or shorter? Why?

Reference no: EM132488592

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