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Question 61  NPV

In Australia, domestic university students are allowed to buy concession tickets for the bus, train and ferry which sell at a discount of 50% to full-price tickets.

The Australian Government do not allow international university students to buy concession tickets, they have to pay the full price.

Some international students see this as unfair and they are willing to pay for fake university identification cards which have the concession sticker.

What is the most that an international student would be willing to pay for a fake identification card?

Assume that international students:

  • consider buying their fake card on the morning of the first day of university from their neighbour, just before they leave to take the train into university.
  • buy their weekly train tickets on the morning of the first day of each week.
  • ride the train to university and back home again every day seven days per week until summer holidays 40 weeks from now. The concession card only lasts for those 40 weeks. Assume that there are 52 weeks in the year for the purpose of interest rate conversion.
  • a single full-priced one-way train ride costs $5.
  • have a discount rate of 11% pa, given as an effective annual rate.

Approach this question from a purely financial view point, ignoring the illegality, risk of deportment, embarrassment and the morality of committing fraud.




Copyright © 2014 Keith Woodward