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1. Zaggy Zargawhoop has an idea for a new business. In order to develop his idea, he needs to invest $600 today. Zaggy's idea will pay off $690 next year for certain. Suppose that Zaggy has no savings to fund his idea and has to borrow money from the bank. a. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy borrow money from the bank to fund his idea? b. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy borrow money from the bank to fund his idea? Now suppose that Zaggy has $600 in his bank account. c. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy withdraw his savings to fund his idea? d. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy withdraw his savings to fund his idea? e. Does the method of financing (whether through savings or debt) appear to affect the relationship between the interest rate and the decision to undertake investment? Explain.

1. Zaggy Zargawhoop has an idea for a new business. In order to develop his idea, he needs to invest $600 today. Zaggy's idea will pay off $690 next year for certain. Suppose that Zaggy has no savings to fund his idea and has to borrow money from the bank. a. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy borrow money from the bank to fund his idea? b. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy borrow money from the bank to fund his idea? Now suppose that Zaggy has $600 in his bank account. c. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy withdraw his savings to fund his idea? d. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy withdraw his savings to fund his idea? e. Does the method of financing (whether through savings or debt) appear to affect the relationship between the interest rate and the decision to undertake investment? Explain.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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1. Zaggy Zargawhoop has an idea for a new business. In order to develop his idea, he needs to invest $600 today. Zaggy's idea will pay off $690 next year for certain. Suppose that Zaggy has no savings to fund his idea and has to borrow money from the bank. a. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy borrow money from the bank to fund his idea? b. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy borrow money from the bank to fund his idea? Now suppose that Zaggy has $600 in his bank account. c. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy withdraw his savings to fund his idea? d. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy withdraw his savings to fund his idea? e. Does the method of financing (whether through savings or debt) appear to affect the relationship between the interest rate and the decision to undertake investment? Explain.
Transcribed Image Text:1. Zaggy Zargawhoop has an idea for a new business. In order to develop his idea, he needs to invest $600 today. Zaggy's idea will pay off $690 next year for certain. Suppose that Zaggy has no savings to fund his idea and has to borrow money from the bank. a. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy borrow money from the bank to fund his idea? b. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy borrow money from the bank to fund his idea? Now suppose that Zaggy has $600 in his bank account. c. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy withdraw his savings to fund his idea? d. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy withdraw his savings to fund his idea? e. Does the method of financing (whether through savings or debt) appear to affect the relationship between the interest rate and the decision to undertake investment? Explain.
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