each, starting 3 years from now. What is the present value if the discount rate is 10%? 2) If the discount rate is 8% per year, what is the present value of $1500 received every third year forever (the first payment occurs three years from now)? 3) A perpetuity makes payments of $500 every second year, with the first payment coming one year from today. If the discount rate is 5%, what is the present value of the perpetuity? 4) You are the pension manager of a large firm. In 25 years an employee will
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rate of 10% per year, how much will you have 20 years from now, assuming no withdrawals in the interim? Solution: FV PV(1000,10%,20) = 6727.5 $6,727.50 2. If you invest $100 every year for the next 20 years, starting one year from today and you earn interest of 10% per year, how much will you have at the end of the 20 years? How much must you invest each year if you want to have $50,000 at the end of the 20 years? Solution: FV PMT (100, 10%,20) = 5727.50 after 20 years you will have $5
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GDP must: 2) _______ A) be larger than the ratio of imports to GDP. B) be less than one. C) be greater than one. D) equal the ratio of imports to GDP. E) none of the above 3) Year-to-year movements in real exchange rates between industrialized countries like the U.S. and Canada are caused mostly by: 3) _______ A) changes in capital controls. B) changes in quotas or tariffs. C) changes in nominal
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called Bearoin. A researcher observes these consumers’ purchases over two years, 1 and 2. The price of Bearoin changes from year 1 to year 2, as a result of an increased number of sellers in the market. The researcher observes the following prices of the drug, and quantities sold, in year 1 and year 2: The year 1 price of the drug for consumers is P1 = $80. The year 1 quantity consumed at that price is Q1 = 400 1. (5 points) Write down the formula for arc price elasticity of demand in terms
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called Bearoin. A researcher observes these consumers’ purchases over two years, 1 and 2. The price of Bearoin changes from year 1 to year 2, as a result of an increased number of sellers in the market. The researcher observes the following prices of the drug, and quantities sold, in year 1 and year 2: The year 1 price of the drug for consumers is P1 = $80. The year 1 quantity consumed at that price is Q1 = 400 1. (5 points) Write down the formula for arc price elasticity of demand in terms
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CONCEPTS A dollar today is worth more than a dollar a year from now because a dollar received today can be invested, yielding more than a dollar a year from now. MATHEMATICS OF INTEREST If P dollars are invested today at the annual interest rate r, then in n years you would have Fn dollars computed as follows: Fn = P(1 + r)n EXAMPLE: If $100 is invested today at 8% interest, how much will the investment be worth in two years? F2 = $100(1 + 0.08)2 F2 = $116.64 The
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nominal interest rate is 10 percent and the inflation-free interest rate is 5 percent. What is the inflation rate? i = 10%; r = 5%; p = ? i = r + p + rp 0.1 = 0.05 + p + 0.05p 0.05 = 1.05p p = 0.0476 = 4.76% 5. Assume no taxes. Suppose the inflation-free interest rate is 5 percent. The market forecasts a deflation rate of 15 percent. What is the nominal interest rate? r = 5%; p = -15%; i = ? i = r + p + rp i = 0.05 + (-0.15) + 0.05(-0
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Decisions Solutions to Questions 14-1 Capital budgeting screening decisions concern whether a proposed investment project passes a preset hurdle, such as a 15% rate of return. Capital budgeting preference decisions are concerned with choosing from among two or more alternative investment projects, each of which has passed the hurdle. 14-2 The “time value of money” refers to the fact that a dollar received today is more valuable than a dollar received in the future. A dollar received today
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Simple Interest 3.1 What is Simple Interest? 3.2 Simple Interest Formula 4. Compound Interest 4.1 What is Compound Interest? 4.2 Compound Interest Formula 5. Compound Interest Tables 1. Future Value of $1 2. Present Value of $1 3. Present Value of an Ordinary Annuity of $1 4. Present Value of an Annuity due 5. Present Value of a Deferred Annuity 6. Conclusion 7. References Abstract The time value of money (TVM) is based on the principle that "a dollar today is worth
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and watch it grow. Rather, money is invested in small amounts at periodic intervals. Consider these problems: 1. Chrissy deposits $200 each year into a savings account that has an annual interest rate of 8% compounded annually. How much money will Chrissy have in her account after three years? Hint: Make up a table of how much she has in her account by year. 2. Ben saves $50 per month in a credit union that has an annual interest rate of 6% compounded monthly. How much money will Ben have in his
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