Someone is going to give you money because you are awesome! They have given you three choices:
Option A - They will give you $205 today.
Option B - They will give you $225 in 2 years.
Option C - They will give you $75 today, $50 in 1 year, and $90 in 2 years.
- The risk-free rate is 4%. Which option should you choose (for the highest present value)?
- The 1 year annual risk-free rate is 4% and the 2 year annual risk-free rate is 6%. Which option should you choose (for the highest present value)?
Please show formulas