Farmer Jones bought his farm for 75,000 in 1975. Today the farm ...

[skymedlock]

Farmer Jones bought his farm for 75,000 in 1975. Today the farm is worth 500,000, and the interest rate is 10 percent.
 
  ABC Corporation has offered to buy the farm today for 500,000 and XYZ Corporation has offered to buy the farm for 530,000 one year from now. Farmer Jones could earn net profit of 15,000 (over and above all of his expenses) if he farms the land this year. What should he do? A) Sell to ABC Corporation.
  B) Farm the land for another year and sell to XYZ Corporation.
  C) Accept either offer as they are equivalent.
  D) Reject both offers.

Question 2

In 1985, Alice paid 20,000 for an option to purchase ten acres of land. By paying the 20,000, she bought the right to buy the land for 100,000 in 1992. When she acquired the option in 1985, the land was worth 120,000.
 
  In 1992, it is worth 110,000. Should Alice exercise the option and pay 100,000 for the land? A) Yes.
  B) No.
  C) It depends on what the rate of inflation was between 1985 and 1992.
  D) It depends on what the rate of interest was.

[emsimon14]

Answer to Question 1

A

Answer to Question 2

A

[skymedlock]

Thank you

[emsimon14]

No problemo