Nicolas Nemni LinkedIn: http://bit.

ly/nmnemni June 7, 2013

Should I marry an older woman?

The Problem Some people think that marrying an old woman who is about to die is the fastest way to get a lot of money. But is this really true? In this short paper I'll try to answer this question. Hypotheses Assume that you own a certain amount of capital C. You have two options for investing this capital: 1) Invest it in government bonds (or other "risk-free" products do those even exist anymore?!) at an annual compound interest rate of i. 2) Start a business venture or invest in one. The return on the capital will follow a return function. For simplicity let's say that the capital will grow at a yearly compound interest rate of k. Assume that you have found an old woman who will die in T years1 and who is willing to revise her will so that she will bequeath to us 100% of her wealth, E2. Assume that you cannot marry the old woman and work at the same time.

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 + !

You should marry the old woman if and only if E > C [ 1 + k

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.