### Drawing a Cash Flow Diagram **Problem Overview:** **a. South Korean Debt Repayment** - The SK debt as of today amounts to 12 trillion. - These balloons have an interest rate of 0.16% yearly. - Suppose the republic requires every earning individual to pay the debt by 2030: - How much each would need to pay monthly (annual payment amortized in 12 equal payments)? - Assuming inflation is 3%, the interest rate is 5.6% compounded daily. - Payment starts by the end of 2022. - South Korea has an estimated 110 million people, with a workforce of around 20%. **b. Bank Offer Amid Stock Market Fall (COVID-19)** - Initial investment of P50,000 in the year 2003. - Bank offered 3.7% interest rate, compounded quarterly for 6 years. - After 6 years, P5,000 was liquidated. - New lump sum further invested at 4% interest rate, compounded semi-annually. - With the pandemic, the latest interest rate applies but with an inflation rate of 1.89% until the end of 2025. - Calculate the investor's earnings/losses by 2025. **c. Cash Flow Diagram for Dollars (Deferred)** - Diagram depicts year-end cash flows (in dollars) deferred in some years. - MARR (Minimum Attractive Rate of Return) = 2.7%. - Find the value of the arrow indicated (x). **Detailed Explanation of Graph/Diagram:** **Graph/Diagram Description (Part c):** - The horizontal axis represents time (years). - Y-axis represents the cash flow values (in dollars). - Cash flows are depicted at specific points in time. - Noted values at different years: - At year 1: -20,000 USD cash outflow. - At year 2: -40,000 USD cash outflow. - At year 4: +10,000 USD cash inflow. - At year 6: +30,000 USD cash inflow. - At year 5 (denoted as ‘x’): The unknown value to be found. **Cash Flow Values:** - \( A_1 = -20,000 \) USD at year 1 - \( A_2 = -40,000 \) USD at year
### Drawing a Cash Flow Diagram **Problem Overview:** **a. South Korean Debt Repayment** - The SK debt as of today amounts to 12 trillion. - These balloons have an interest rate of 0.16% yearly. - Suppose the republic requires every earning individual to pay the debt by 2030: - How much each would need to pay monthly (annual payment amortized in 12 equal payments)? - Assuming inflation is 3%, the interest rate is 5.6% compounded daily. - Payment starts by the end of 2022. - South Korea has an estimated 110 million people, with a workforce of around 20%. **b. Bank Offer Amid Stock Market Fall (COVID-19)** - Initial investment of P50,000 in the year 2003. - Bank offered 3.7% interest rate, compounded quarterly for 6 years. - After 6 years, P5,000 was liquidated. - New lump sum further invested at 4% interest rate, compounded semi-annually. - With the pandemic, the latest interest rate applies but with an inflation rate of 1.89% until the end of 2025. - Calculate the investor's earnings/losses by 2025. **c. Cash Flow Diagram for Dollars (Deferred)** - Diagram depicts year-end cash flows (in dollars) deferred in some years. - MARR (Minimum Attractive Rate of Return) = 2.7%. - Find the value of the arrow indicated (x). **Detailed Explanation of Graph/Diagram:** **Graph/Diagram Description (Part c):** - The horizontal axis represents time (years). - Y-axis represents the cash flow values (in dollars). - Cash flows are depicted at specific points in time. - Noted values at different years: - At year 1: -20,000 USD cash outflow. - At year 2: -40,000 USD cash outflow. - At year 4: +10,000 USD cash inflow. - At year 6: +30,000 USD cash inflow. - At year 5 (denoted as ‘x’): The unknown value to be found. **Cash Flow Values:** - \( A_1 = -20,000 \) USD at year 1 - \( A_2 = -40,000 \) USD at year
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:### Drawing a Cash Flow Diagram
**Problem Overview:**
**a. South Korean Debt Repayment**
- The SK debt as of today amounts to 12 trillion.
- These balloons have an interest rate of 0.16% yearly.
- Suppose the republic requires every earning individual to pay the debt by 2030:
- How much each would need to pay monthly (annual payment amortized in 12 equal payments)?
- Assuming inflation is 3%, the interest rate is 5.6% compounded daily.
- Payment starts by the end of 2022.
- South Korea has an estimated 110 million people, with a workforce of around 20%.
**b. Bank Offer Amid Stock Market Fall (COVID-19)**
- Initial investment of P50,000 in the year 2003.
- Bank offered 3.7% interest rate, compounded quarterly for 6 years.
- After 6 years, P5,000 was liquidated.
- New lump sum further invested at 4% interest rate, compounded semi-annually.
- With the pandemic, the latest interest rate applies but with an inflation rate of 1.89% until the end of 2025.
- Calculate the investor's earnings/losses by 2025.
**c. Cash Flow Diagram for Dollars (Deferred)**
- Diagram depicts year-end cash flows (in dollars) deferred in some years.
- MARR (Minimum Attractive Rate of Return) = 2.7%.
- Find the value of the arrow indicated (x).
**Detailed Explanation of Graph/Diagram:**
**Graph/Diagram Description (Part c):**
- The horizontal axis represents time (years).
- Y-axis represents the cash flow values (in dollars).
- Cash flows are depicted at specific points in time.
- Noted values at different years:
- At year 1: -20,000 USD cash outflow.
- At year 2: -40,000 USD cash outflow.
- At year 4: +10,000 USD cash inflow.
- At year 6: +30,000 USD cash inflow.
- At year 5 (denoted as ‘x’): The unknown value to be found.
**Cash Flow Values:**
- \( A_1 = -20,000 \) USD at year 1
- \( A_2 = -40,000 \) USD at year
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