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Marie maximizes the present value of her payoffs. She wins a lottery which offers her the following options: either take a one-time payment of
Marie maximizes the present value of her payoffs. She wins a lottery which offers her the following options: either take a one-time payment of 200000 Euros or to get 5000 Euros every period forever, where she discounts future payments at a rate of 8 = (0, 1). For which values of 8 will she take the one-time payment? (Repetition: Derive the formula for the present value of a constant money stream/perpetuity/annuity with an infinite payoff stream for a given discount/interest rate.)
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