A Certain Wine Costs $3 a Bottle to Produce

A certain wine costs $3 a bottle to produce. The amount that people are willing to pay to drink it t years after it has been bottled is $2 + 3t. Storage costs, not including interest, are $.50 per year. If the interest rate is 5%, how much would a rational investor be willing to pay for it at the time it is bottled? Explain how you got your answer. Feel free to write formulas for present value calculations without working out the numerical answer if it involves long calculations. (Hint: How long would the wine be kept before it is drunk? At what price would it sell?)

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The wine would be kept for 16 years and ...

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