Suppose that you need to choose between the following two options: Option 1: Receive $392 at the end of each year, forever (i.e., at t=1, 2, , ). Option 2: Receive $797 at the end of each year, for the next 10 years (i.e., at t=1, 2, ..., 9, 10). Compounding is annual and the interest rate is constant over time. Suppose that you will decide based on the Present Value Criterion.

1. Which option will you pick if the interest rate is 6%? (10 points)

b. Which option will you pick if the interest rate is 8%? (5 points)

c. Is there any interest rate value at which you are indifferent between the two options? (In other words, can you find where approximately the Fisher rate is?) (10 points)