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- 1.Investment Problem Cost of bldg.. =5M Gross Revenue = 9.5 M Operating expense = 4M Nominal interest rate = 12% Ongoing inflation rate = 8% a.)How much is the total profit? b.)Determine the expected rate of return (r) c.)Determine the real interest rate d.)Determine the interest cost e.)How much will be added to the firm’s profit?1. Investment Problem Cost of bldg.. = 5M Gross Revenue = 9.5 M Operating expense = 4M Nominal interest rate = 12% Ongoing inflation rate = 8% a.) How much is the total profit?2. What is inflation? How will this affect the economic analysis of engineering projects?
- Ben purchase a single bond note which has a face value of R20,000 and a coupon rate of 7.5%. The bond matures in 10 years and the rate of inflation is expected to be 4.5% per year over this period. His minimum acceptable rate of return (MARR) is 7% (use this value as the discount rate).A. Draw the timeline showing the nominal cash flows over the next 10 years.B. Calculate the inflation index for each year over the whole period (start with 1.0 at Year 0).C. Calculate the real cash flows for each year and show these on the timelineD. Calculate the NPV of all the nominal cash flows using MARRE. Calculate the MARR in real terms (adjusted for inflation)F. Calculate the NPV of all the real cash flows using the answer for E (inflation-adjusted MARR)G. Lastly, calculate the IRR for the real cashflowsIf the CPI in period 1 is 125 and the CPI in period 2 is 150, then the rate of inflationbetween period 1 and period 2 isA) 20%.B) 25%.C) 30%.D) 50%. If the price index in period 3 is 125 and the price index in period 4 is 120, the rate of inflation between period 3 and period 4 is A) -5%. B) -4 %. C) 20%. D) 4 %
- Need help with economics question asap 3. Assume that the economy has an annual inflation rate of 5 percent. Are the following investments profitable in real terms?(a) A $1,000 face-value bond, which you purchase at a 30% discount, that pays a monthly coupon of $4. (b) A $1 million house increases in price by $45,000 per year. You do not rent out the house, nor do you undertake renovations. (c) A $1 million house that you renovate for $45,000 over the course of a year, causing the price to increase to $1.1 million.Question 7 15.0% 14.0% 13.0% 12.0% 11.0% .10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Inflation Rate (n) down to 0 decreases to 5.04 1,000 2,000 10.04 3,000 4,000 5,000 Consider the graph above. It is also in the files folder under the name Short Run and the Long Run. The graph pertains to a hypothetical country. The central bank in this country (also called the Fed) follows an inflation targeting policy. The current target inflation rate in 8 percent (I know, it is too high. We will deal with this problem later after appointing a new chairperson for the Fed). The natural rate of unemployment is 5 percent and Okun's alpha is 8. 7000.00 LRAS Suppose that consumer confidence in the economy declines and as a result AD decreases by 3,000 units. This reduction in demand causes the inflation rate to slow 7.00 percent in the short run. In the short run, the real GDP percent. AD Real GDP (Y) SRAS 6,000 7,000 8,000 9,000 10,000 3 11,000 12,000 13,000 14,000 15,000 16.000 17,000…a. 4%. b. 8%. LA Year 2022 2023 2024 2025 2026 2027 2028 2029 LA 2030 2031 2032 c. 10%. 2 Percent $ 1,000 980 961 942 924 906 888 871 853 837 820 Annual Inflation Rate 4 Percent $ 1,000 962 925 889 855 822 790 760 731 703 676 6 Percent $ 1,000 943 890 Using the table, what will the real value of $100 be in 5 years if you hide the money under your mattress and the inflation rate is Instructions: Round your responses to two decimal places. Assume you hid the money under your mattress in 2022. 840 792 747 705 665 627 592 558 8 Percent $ 1,000 926 857 794 735 681 630 584 540 500 463 10 Percent $ 1,000 909 826 751 683 621 564 513 467 424 386
- Suppose you lent money to a friend a few years ago at a nominal interest rate of 6%. At the time ot he loan, you expected the annual inflation rate to be 2%, but the actual annual inflation rate was 1.2%. When the loan originated, you expected to earn a real return of but due to unexpected disinflation, you earned an actual real return of A. 2%; 1.2% OB. 4.8%; 6% C. 6%; 4.8% D. 4%; 4.8%(i) (ii) (iii) Given a consumer price index of 154.5 in the year 2019 and 165.3 in 2020, calculate the rate of inflation in 2020. The average price of a car was £35,650 in 2019. Calculate the revised price in 2020 based on the rate of inflation calculated in part (i). Assume that in 2019 Robert has invested £2000 in a bank account, which pays an annual interest rate of 6%. After a year has passed, he is paid £120 in interest. Explain whether Robert is now better off than he was the year before based on your answer in part (i).15.0% 14.0% 13.0% 12.0% 11.0% . 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Inflation Rate (n) 0 1,000 2,000 3,000 000't 5,000 6,000 000'2 8,000 9,000 000'0 LRAS 3 11,000 12,000 13,000 Real GDP (Y) This policy causes the inflation rate to drop to 14,000 9 AD SRAS 15,000 16,000 17,000 18,000 19,000 20,000 Short Run and Consider the graph above. It is also in the files folder under the name the Long Run. The graph pertains to a hypothetical country. The central bank in this country (also called the Fed) follows an inflation targeting policy. The current target inflation rate in 8 percent. The natural rate of unemployment is 5 percent and Okun's alpha is 8. Finally, the president of the country appoints a new chairperson for the central band and the chair decides to bring the runaway inflation under control (as the U.S. FED did in 1980). The new chair realizes that 8 percent inflation target is way too high. So, s/he decides to reduce the long-term target inflation rate to 2…