1. What is the discount factor that is equivalent to a 6% discount rate?
2. If your discount factor is 0.9009, what is your discount rate?
3. You plan to borrow $1000 from a bank. In exchange for $1000 today, you promise to pay $1080 in one year. What does the cash flow timeline look like from your perspective? What does it look like from the bank’s perspective?
Suppose the interest rate is 4%.
a. Having $200 today is equivalent to having what amount in one year?
b. Having $200 in one year is equivalent to having what amount today?
c. Which would you prefer, $200 today or $200 in one year? Does your answer depend on when you need the money? Why or why not?
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