Question 3:

Consider a $600 loan to the Catholic Church that will be paid back without interest (the Church does not believe in usury) in two equal installments of $300, the first to be received at the end of one year and the second at the end of two years. The person who made this loan is strapped for cash and wants to sell it to you. How much is it worth, assuming that the market interest rate on virtually risk-free securities is 5 percent?

1. $600.

2. $558.

3. Nothing because the loan doesn't pay interest.

Choose the correct option?