In 1985, Alice paid $20,000 for an option to purchase ten acres of land. By payingthe

$20,000, she bought the right to buy the land for $100,000 in 1992. When she acquiredthe

option in 1985, the land was worth $120,000. In 1992, it is worth $110,000. ShouldAlice

exercise the option and pay $100,000 for the land?

a.Yes. b.No.

c.It depends on what the rate of inflation was between 1985 and1992.

d.It depends on what the rate of interest was.