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lectur8-page35 - If we buy fertilizer six months in advance...

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Why buy fertilizer 6 months in advance? $5,000 of fertilizer X .(06/2) = $150 of interest lost add to that the $5,000 expenditure, and that fertilizer actually cost $5,150 to acquire The example above assumes a 6% annual interest rate. We divide by 2 in the equation above because six months is half of a year.
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Unformatted text preview: If we buy fertilizer six months in advance, in this example we are giving up the opportunity to earn $150 of interest. So, if we buy fertilizer six months in advance, it actually cost us $5,150 to acquire....
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