You are planning to invest in fine wine. Each case costs $100 (at time 0), and you know from experience that the (future) value of
You are planning to invest in fine wine. Each case costs $100 (at time 0), and you know from experience that the (future) value of a case of wine held fortyears is100tfort1 .Wine is thus increasing in value over time. One case of wine is available to purchase, and the annual interest rate you can earn by keeping money in the bank is 10 percent.
-Should you buy the case of wine?
-How many years should you hold the case of wine before selling it?
(Consider only integer years. Suppose that interest is compounded discretely (annually), not continuously.)
-How much money will you receive for the case of wine at the time of its sale?
-What is the net present value of that investment?
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Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz
9th Edition
978-0132146654, 0132146657, 9780273754091, 978-0273754206
