Exercise 2: Choosing Interest Rates (30 points) (a) (15 pts) An analyst for a municipal public housing agency explained the choice of a discount rate as follows: "Our agency funds its capital investments through taxes. The effective interest rate that we pay on nationally issued bonds is the cost that the agency faces in shifting revenue from the future to the present. It is, therefore, the appropriate discount rate for the agency to use in evaluating alternative investments." Comment on the appropriateness of this discount rate. (b) (15 pts) An analyst for a municipal public housing agency explained the choice of a discount rate as follows: "Our agency funds its capital investments through taxes. The rate of time preference of the citizens of the municipality represents their trade-off between consumption that occurs in different time periods. It is, therefore, the appropriate dis- count rate for the agency to use in evaluating alternative investments." Comment on the appropriateness of this discount rate