Jonas recently purchased a one-year membership at Gold's Gym. He can add a second year to the membership now for $1215, or wait 11 months and pay the regular single year price of $1280. Which is the better economic alternative if money is worth 8.5%? At what discount rate would the alternatives be equivalent?
Jonas interested to wait 11 months and pay the regular single year price of$1280. Because, payable for $1215 is 8.5% APR. It will be 0.085 * 1215 = 103.26 rounded. So 1280 is less than 1318.26 (1215+103.26)