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You are indifferent about whether you receive $100 today or $110 one year from now. The...

  1. You are indifferent about whether you receive $100 today or $110 one year from now. The bank pays you 6 percent on deposits and charges you 8 percent for loans. Name the three types of equivalence and comment (with one sentence for each) on whether each exists for this situation and why.
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Answer #1

the three types of equivalence are :-

1) market equivalence

2) mathematical equivalence

3) decisional equivalence

=>(1) Market equivalence does not apply because the cost of borrowing and lending is not the same.

=> (2) mathematical equivalence does not hold as neither 6% nor 8% is the rate of exchange between the $100 today and the $110 one year from now.

=>(3) Decisional equivalence holds because you are indifferent between the $100 today and the $110 one year from now.

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