ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337408059
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 13, Problem 9P
To determine
Identify the present value of an income stream
Concept Introduction:
Interest rate: The rate charged per period for borrowed money, deposited or lend expressed as a percentage of principal
Present value of an income stream: The current value of a future sum of money or stream of cash flows at a given specified
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QUESTION 1
Muhammad takes out a loan of $ 4,324, at 8% simple interest, for 9 years. How much will he pay back at the end of year 9?
QUESTION 2
Calculate the amount of interest on an investment of AED 149,956 at 8% simple interest for 7 years.
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Chapter 13 Solutions
ECON MICRO (with MindTap, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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- H6. a. what is the present value of a two year income stream $10,000 in year 1 and $10,000 in year 2 assuming a 5% interest rate (assuming one gets paid at the end of the year) b. what is the present value of a $10,000 income stream obtained in every throughout one's life?arrow_forward3 Question 20: An individual makes rental payments of $1,200 per month and wants to know the present value of their annual rentals over a 12-month period. The payments are made at the start of each month. The current interest rate is 8% per annum.arrow_forward6. You may borrow or lend at a 5% interest rate, which you expect to remain stable forever. Make a choice and explain your answer in each scenario below. a. You may receive a gift of $500 today or a gift of $540 next year. b. You may receive gift of $100 today or a four-year loan of $500 without interest. c. You may receive a $350 rebate on an $8000 car or one year of no-interest financing on the full price of the car. d. You have just won $1 million in the lottery. You may receive $500,000 now or the full million, paid out in 20 annual payments of $50,000. e. Alternatively, you may take $500,000 now or receive $25,000 per year for eternity (a contract that your heirs will inherit).arrow_forward
- Suppose Tom is 20 years old. He works till 50 years old, retire, and live up to 80 years old. While working, Tom's job pays a month income of $2000/month. There's no income or pension after retirement. (Also ignore any medical expense or existing debt). If beta=1 and i=0%, then Tom's month spending = $______/month. Hint: you can calculate how many years Tom will be earning the income, and how many years Tom need to spend the income.arrow_forwardA3arrow_forward1. A consumer, who is initially a lender, remains a lender even after a decline in interest rates. Is this consumer better off or worse off after the change in interest rates? If the consumer becomes a borrower after the change is he better off or worse off? 2. What is the present value of $100 one year from now if the interest rate is 10%? What is the present value if the interest rate is 5%?arrow_forward
- 1. Compute the following: a. The present value of $25,000 each year for 4 years at a 7 percent interest rate present value of $152,000 each year for 5 years at a 6 percent interest rate b. The C. The present value of $60,000 each year for 10 years at a 6.5 percent interest ratearrow_forward2.One of life's great lessons is to start early and save all the money you can! If you save $10 today and $10 each and every day thereafter until you are 60 years old(suppose you're 20 years old now, save $3,650 per year), how nuch money will you accumulate if the annual interest rate is 5%?arrow_forward17. What makes up the supply curve in the loanable funds market? Why does this curve have a positive relationship with the real interest rate?arrow_forward
- 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.)arrow_forwardSuppose that you earn $320 in year 1 and will ean $720 in year 2. If you borrow money against your future income you will have and additional $576 to spend in year 1, and if you lend all of your current income you will have and additional $400 to spend in year 2. In both years you consume only food which costs $1 per kilogram in each year. What is the interest rate that you borrow and lend at? R= Let your MRS for food in year 1 with food in year 2 be given by the formula where F is the amount of food consumed this year and F is the amount of food consumed next year. Calculate your consumption bundle: F = F = Suppose the interest rate at which you can borrow and lend changes to 20%. Calculate your new consumption bundle: F = F2 = Which interest rate is preferred? The initial interest rate found in part 1 O The new interest rate, 20%arrow_forwardplease answerarrow_forward
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