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Question A2. Please fill in the amount for which you consider the alternatives A and B as equally attractive:Please consider the following alternatives:A.  a payment of 100 $ nowB.  a payment of X $ in one year from nowX has to be at least            $, such that B is as attractive as A.

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Question A2. Please fill in the amount for which you consider the alternatives A and B as equally attractive:Please consider the following alternatives:A.  a payment of 100 nowB. apaymentofX nowB.  a payment of X in one year from nowX has to be at least            $, such that B is as attractive as A.

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Solution

The value of X depends on your personal discount rate, which is the rate at which you would be willing to give up future money for money today. This rate can vary greatly from person to person.

For example, if your personal discount rate is 10%, then you would be indifferent between receiving 100todayandreceiving100 today and receiving 110 in one year. Therefore, X would be $110.

However, if your personal discount rate is 20%, then you would be indifferent between receiving 100todayandreceiving100 today and receiving 120 in one year. Therefore, X would be $120.

So, the value of X depends on your personal discount rate.

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