EBK ECONOMICS OF MONEY, BANKING AND FIN
12th Edition
ISBN: 8220106832059
Author: Mishkin
Publisher: PEARSON
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Chapter 4, Problem 1Q
To determine
The present value of a dollar is more worth with 20% interest rate or 10% interest rate.
Expert Solution & Answer
Answer to Problem 1Q
The value of a dollar is more worth today with 10% interest rate.
Explanation of Solution
Calculation of present worth of dollar when the interest rate is 20%:
Given,
Future worth is 1 dollar.
Interest rate is 20%.
Formula to calculate the present worth:
Here,
- PW is the present worth
- FW is the future worth
- iis the interest rate
Substitute 1 dollar for FW and 20% for interest rate.
Therefore, present worth of dollar, when the interest rate is 20% is 0.83.
Calculation of present worth of dollar when the interest rate is 10%:
Given,
Future worth is 1 dollar.
Interest rate is 10%.
Formula to calculate the present worth:
Here,
- PW is the present worth.
- FW is the future worth
- iis the interest rate
Substitute 1 dollar for FW and 10% for interest rate.
Therefore, present worth of dollar when the interest rate is 20% is 0.90.
The value of a dollar is more worth today with 10% interest rate.
Economics Concept Introduction
Introduction: Present worth is the current value of future money given a specified interest rate. It is also known as present discounted value. It is the value of cash today that will be received in the future. It is the worth of future amount today.
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Chapter 4 Solutions
EBK ECONOMICS OF MONEY, BANKING AND FIN
Ch. 4 - Prob. 1QCh. 4 - Prob. 2QCh. 4 - Prob. 3QCh. 4 - Prob. 4QCh. 4 - Prob. 5QCh. 4 - Prob. 6QCh. 4 - Prob. 7QCh. 4 - Prob. 8QCh. 4 - Prob. 9QCh. 4 - Prob. 10Q
Ch. 4 - Prob. 11QCh. 4 - Prob. 12QCh. 4 - Prob. 13QCh. 4 - Prob. 14APCh. 4 - Prob. 15APCh. 4 - Prob. 16APCh. 4 - Prob. 17APCh. 4 - Prob. 18APCh. 4 - Prob. 19APCh. 4 - Prob. 20APCh. 4 - Prob. 21APCh. 4 - Prob. 22APCh. 4 - Prob. 23APCh. 4 - Prob. 24APCh. 4 - Prob. 25APCh. 4 - Prob. 1DAPCh. 4 - Prob. 2DAPCh. 4 - Prob. 1WE
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