Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 17, Problem 17.3P
To determine
To find:Time duration after which a person sell scotch to maximize PDV.
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The Fly-by-Night finance company advertises a "bargain 6% plan" for financing the purchase
of automobiles. To the amount of the loan being financed, 6% is added for each year money is
owed. This total is then divided by the number of months over which the payments are to be
made, and the result is the amount of the monthly payments. For example, a woman
purchases a $10,000 automobile under this plan and makes an initial cash payment of $2,500.
She wishes to pay the $7,500 balance in 24 monthly payments: Find the IRR and Effective
Annual Interest rate.
Purchase price
-Initial payment
= Balance due, (Po)
+6% finance charge = 0.06 × 2 years × $7,500
= Total to be paid
.. Monthly payments (A) = $8,400/24
=
$10,000
2,500
7,500
900
8,400
$350
Suppose that $500 is invested at the end of every year for 5 years. The polynomial
function that models the value of the investment is
P(x) = 500x5 + 500x4 + 500x³ + 500x² + 500x, where x
represents the effective interest rate plus 100%. One year after the last payment, the
investment is worth $3200. Find the effective interest rate one year after the last
payment, to the nearest tenth. (Note: You will need to subtract 1 from the value of x
to find the effective interest rate.)
You can invest in an account that pays simple interest or an account that pays compound
interest. In either case, you plan to invest $2,900 today and both accounts have an annual
interest rate of 8 percent. How much more interest will you receive in the 11th year in the
account that pays compound interest?
Chapter 17 Solutions
Microeconomic Theory
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