Suppose that you are considering subscribing to Economist Analyst Today magazine. The magazine is advertising a one-year subscription for $60 or a two-year subscription for $115.
You plan to keep getting the magazine for at least two years. The advertisement says that a two-year subscription saves you $5 compared to buying two successive one-year subscriptions.
If the interest rate is 10%, should you subscribe for one year or for two years?
(Assume that one year from now a oneyear subscription will still be $60.)