Think of the entrepreneur with no initial resources (but s/he has a good idea=superior project). Recall that this person is living in a "perfect capital market" where the prevailing interest rate is 10%. Also suppose that the entrepreneur's "good idea=superior project" allows her/him to convert an investment worth $1000 at

Think of the entrepreneur with no initial resources (but s/he has a good idea=superior project). Recall that this person is living in a "perfect capital market" where the prevailing interest rate is 10%. Also suppose that the entrepreneur's "good idea=superior project" allows her/him to convert an investment worth $1000 at

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Abby lives and works for two periods. In the first period, she earns 1,000 coconuts while inthe second she earns 2,200 coconuts. Abby can save or borrow from a bank at the same interestrate of 10%. Abby also owns a 550 sq.ft. apartment, priced at 2 coconuts per square foot. Shecannot sell it in the first period because she needs a place to stay in the second, but she canborrow against it and sell it in the second.a. In a graph that has future consumption on the vertical axis and current consumption onthe horizontal, show how her lifetime budget constraint would look if banks do NOT requirecollateral. Make sure to compute and show the coordinates of the vertical and horizontalintercepts as well as those of the endowment point (which in the second period shouldinclude her house).b. Suppose that Abby likes to consume 2,400 coconuts in the first period. Could she do thatif banks do not require collateral? Would the outcome be Pareto optimal and why?c. Suppose now that banks do require…
Mr. Smith has some money to invest. He selected three stocks and two bond funds as possible investments, shown in the following table. Investment Stock A Stock B Stock C Bond-long term Bond-short term Risk Annual Return High Medium Low 15% 12% 9% 11% 8% One of Mr. Smith's investment requirements is "the total amount invested cannot exceed $500,000". Which option represents this constraint? Note: (X₁, X₂, X₁, X₁, and X, are investment in stock A, stock B, stock C, long term bond and short term bond, respectively
How much should they save annually for the next three years if they want to build up Joseph's college fund to $31,000, assuming a 5 percent rate of return and ignoring taxes on the interest?
A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $3,000. Each year after that, you will receive a payment on the anniversary of the last payment that is 4% larger than the last payment. This pattern of payments will go on forever. Assume that the interest rate is 15% per year. a. What is today's value of the bequest? b. What is the value of the bequest immediately after the first payment is made? ARCKICHI a. What is today's value of the bequest? Today's value of the bequest is $(Round to the nearest dollar. b. What is the value of the bequest immediately after the first payment is made? The value of the bequest immediately after the first payment is made is $ (Round to the nearest dollar.)
Google Chrome /ui/evo/index.html?deploymentld%3567367191157146081391041129998&elSBN=9781337096607&snapshotld%3D1586258&id3D709153691& Q Search this course CENGAGE MINDTAP Homework (Ch 13) Back to Assignment Attempts: Average: /5 2. Saving and investment in the national income accounts The following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $1,330 million. Enter the amount for investment. Value National Income Account (Millions of dollars) Government Purchases (G) 350 Taxes minus Transfer Payments (T) 455 Consumption (C) 700 Investment (I) Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table. hp ho 12 ins prt sc delete bome
Fill in each statement with the appropriate capital investment analysis method: Payback, ARR, NPV, or IRR. Some statements may have more than one answer. a. نه ن ن ن نه b. C. d. e. is (are) more appropriate for long-term investments. highlights risky investments. shows the effect of the investment on the company's accrual-based income. is the interest rate that makes the NPV of an investment equal to zero. requires management to identify the discount rate when used.
a) Write an expression for 8(t) (aka: force of interest) such that its accumulation function is the same as a 2% rate of simple interest. b) What is 8(8)?
You work for a bank that has just made two loans. In one, you lent $900 today in return for $1200 in one year. In the other, you lent $900 today in return for $10000 in 20 years. The difference between the loan amount and repayment amount is based on an interest rate of 8% per year. Imagine that immediately after you make the loans, news about economic growth is announced that increases inflation expectations, so that the market interest rate for loans like these jumps to 10%. Loans make up a major part of a bank’s assets, so you are naturally concerned about the value of these loans. What is the effect of the interest rate change on the value to the bank of the promised repayment of these loans?
When Andrew was 10 years old, his mother invested $50,000 to use for his college education seven years later. After seven years, how much money did Andrew have if the interest rate was 2 percent a year? A. $57,434.28 B. $50,357.00 C. $50,000.00 D. $43,528.01
What process does the net present value method use to help management determine whether a project is acceptable to a company? Options : A. It discounts net cash flows to their present value and then compares that value to the capital outlay required by the project.B. It determines the interest rate that will cause the present value of the capital expenditure to equal the present value of the expected net cash flows.C. It divides the present value of net cash flows by the initial investment to determine the profitability index of the project.D. It identifies the time period required to recover the cost of the capital investment from the net annual cash flow produced by the project.
The value of land in Manhattan was around $150 billion in 2008. Imagine that it is 1626 and you are the economic advisor to the Dutch when they are considering whether to buy Manhattan from the Manhasset Indians. Further,assume that the relevant interest rate for calculating the present value is 4%per year. Would you advice the Dutch that a purchase price of $24 is a good deal or not? How would your answer change if the interest rate were 6%? And 8%? (Hint: for each interest rate,calculate the present value in 1626 of the land value as of 2008. Then compare that with the purchase price in 1626. For example, simplify by assuming that the owners collect no rents on the land. As an advanced further question,assume that the rent equals 2% of the value of the land each year.)
2. A group of investors is planning to build an athletic equipment and apparel store in Saskatoon, close to a group of existing big box stores. The group spends $800,000 to buy the required land and to develop the parking lot. After completing these steps they terminate the project when they learn that another athletic store is going to be built close by. What option have the investors exercised? Three years later, the investors still own the land and improvements. How should they value these things if they decide at that time to complete the store as originally planned?