Economics of Money, Banking and Financial Markets - With Access
11th Edition
ISBN: 9780134151809
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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Students have asked these similar questions
Tasks
Exercise 1
Assess the following functions:
1. f(x)= x2+6x+2
2.f '(x)=10x-2x2+5
a. Find the stationary points. (5 marks)
b. Determine whether the stationary point is a maximum or minimum. (5 marks)
c. Draw the corresponding curves (5 marks)
Problem 2:
The sales data over the last 10 years for the Acme Hardware Store are as follows:
2003
$230,000
2008
$526,000
2004
276,000
2009
605,000
2005
328,000
2010
690,000
2006
388,000
2011
779,000
2007
453,000
2012
873,000
1. Calculate the compound growth rate for the period of 2003 to 2012.
2. Based on your answer to part a, forecast sales for both 2013 and 2014.
3. Now calculate the compound growth rate for the period of 2007 to 2012.
1. Based on your answer to part e, forecast sales for both 2013 and 2014.
5. What is the major reason for the differences in your answers to parts b and d? If you were to
make your own projections, what would you forecast? (Drawing a graph is very helpful.)
Exercise 4A firm has the following average cost: AC = 200 + 2Q – 36
Q
Find the stationary point and determine if it is a maximum or a minimum.b. Find the marginal cost function.
Chapter 4 Solutions
Economics of Money, Banking and Financial Markets - With Access
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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