According to the theory underlying the present-value formula, would a rational individual prefer to receive (a) $75 one year from now, (b) $85 two years from now, or (c) $90 three years from now, or would he be indifferent between all three choices? Assume that the relevant annual market interest rate is 20 percent and will remain at 20 percent for the next three years?
A. He will prefer $75 one year from now.
B. He will prefer $85 two years from now.
C. He will prefer $90 three years from now.
D. He will be indifferent between all three choices.
Answer: A
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