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Unformatted text preview: bank is offering new customers
a free iPod nano if they open a new chequing account 03_ch03_berk.indd 71 and make two deposits. Assume the retail price of that
model of nano was $159. Because there is no competitive market to trade iPods, the value of the nano depends
on whether you were going to buy one or not.
If you planned to buy a nano anyway, then the value
to you of the nano is $159, the price you would otherwise pay for it. In this case, the value of the bank’s offer
is $159. But suppose you do not want or need a nano.
If you were to get it from the bank and then sell it, the
value of taking the deal would be whatever price you
could get for the nano. For example, if you could sell
the nano for $100 to your friend, then the bank’s offer
is worth $100 to you. Thus, depending on your desire to
own a new nano, the bank’s offer is worth somewhere
between $100 (you don’t want a nano) and $159 (you
definitely want one). 12/15/11 8:08 PM 72 Part 2 Interest Rates and Valuing Cash Flow...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.
- Spring '07