Suppose there are two firms A and B in the market and the market demand is P = 50 – Q, where P is the price per unit and Q is the total quantity…
September 3, 2020
Asymmetric Information and the Credit Market . Sean is a rice farmer. To grow rice, he must buy seeds, which cost \$100. Rice production is risky.
September 3, 2020

My question is this: You expect to receive a payment of \$600 one year from now. The discount rate is 6% What is the present value of the payment to be received? Suppose the discount rate was 7?, what is the present value of the payment to be received. What will cause the present value of a future payment to decline?

This is what I did but it doesn’t seem correct.PVF = 1/(1 + r)^n

PV = P x PVF = P x 1/(1 + r)^n

Monthly discount rate

Monthly r = 6%/12= 0.005%, n=12

PV = P x PVF = 600 x 1/(1 + 0.005)^12 = 545.14

Present value = \$4.62 if PV=P x PVF=600 x 1/(1 + 0.5)^12

PVF = 1/(1 + r)^n

PV = P x PVF = P x 1/(1 + r)^n

Monthly discount rate

Monthly r = 7%/12= 0.006%, n=12

PV = P x PVF = 600 x 1/(1 + 0.6)^12 =

Present value = \$2.13

PV = P x PVF = 600 x 1/(1 + 0.006)^12 = 558.4386