You have just been approached by a magazine with an offer for renewing your subscription. You...

You have just been approached by a magazine with an offer for renewing your subscription. You can renew for one year at $20, two years for $36, or three years at $45. Assuming that you have an opportunity cost of 20% and the cost of a subscription will not change over time, which of these three options should you choose?

A) 1 year at $20

B) 2 years at $36

C) 3 years at $45

Solutions

Expert Solution

3 years Cost in today's dollars will be compared to find out the optimum plan

1 year at 20 = 20 + 20/(1.2) + 20/(1.2)^2

= $50.56

2 years at 36 = 36 + 20/(1.2)

= $52.67

3 years = $45

Hence, Option C should be chosen since least costly

jeff jeffy answered 2 years ago

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