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Calculations The outcome of the choice is based on a NPV calculation: so we just have to see whether it's better the investment 'Work' or the investment 'Marry the old woman'. Let's calculate the NPV for both investments: !"#$% = 1 + ; !"#$ = + !
!
1 + ! 1 + !
1 + i ! ].
Lets define, !,! (T) = (1 + k)! (1 + i)! as the mark-up of our capability to do better than the risk-free rate of return. Thus the condition to marry the old woman is E > C!,! (T). Conclusion Before deciding whether to marry an old woman you should evaluate: 2. How much you will be able to get from the old woman (E); 3. How much initial capital you have (C) and how much you think you can earn from investing/working with your capital (k); and 4. When you think the old woman will die (T). Substitute everything into the formula and youll have your answer. Good luck in your business! (Or happy married life) Nicolas :)
Of course, there is no way to know the value of T beforehand, but for simplicity well assume that we know exactly when the old woman will die for sure. You could also think of T as a random variable and replace it with its expected value.
2
For simplicity well assume that E is completely liquid and does not devaluate with time.