Adam, a farmer, wants to buy a new equipment in three years from now. He expects that the price of the equipment will be $15000 in three years. Approximately, how much money should Adam put currently in his savings account if a bank pays 5% interest rate on that account? Select one: O a. $12958 O b. $12465 O c. $19284 O d. $15928

Adam, a farmer, wants to buy a new equipment in three years from now. He expects that the price of the equipment will be $15000 in three years. Approximately, how much money should Adam put currently in his savings account if a bank pays 5% interest rate on that account? Select one: O a. $12958 O b. $12465 O c. $19284 O d. $15928

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 6PA

See similar textbooks

Similar questions

A mortgage 105m is a loan that a person makes to purchase a house. Table 19.11 provides a list of the mortgage interest rate for several different years and the rate of inflation for each of those years. In which years would it have been better to be a person borrowing money from a bank to buy a home? In which years would it have been better to be a bank lending money?
What are some ways that someone looking for a loan might reassure a bank that is faced with imperfect information about whether the borrower will repay the loan?
Bond A pays $8,000 in 20 years. Bond B pays $8,000in 40 years. (To keep things simple, assume that theseare zero-coupon bonds, meaning the $8,000 is theonly payment the bondholder receives.)a. If the interest rate is 3.5 percent, what is the valueof each bond today? Which bond is worth more?Why? (Hint: You can use a calculator, but the ruleof 70 should make the calculation easy.)b. If the interest rate increases to 7 percent, what isthe value of each bond? Which bond has a largerpercentage change in value?c. Based on the example above, complete the twoblanks in this sentence: “The value of a bond[rises/falls] when the interest rate increases,and bonds with a longer time to maturity are[more/less] sensitive to changes in the interestrate.”
6. An investor purchases a 30-year U.S. government bond for $840. The bond’s couponrate is 10 percent and, it still had twelve years remaining until maturity. If the investorholds the bond until it matures and collects the $1000 par value from the Treasuryand his marginal tax rate is 25 percent (we assume that the bond is taxable), what willbe his after-tax (effective) yield to maturity? Make sure to show your work.
Economics In 54 months time you expect a cash flow of $3 million. Calculate it’s present value (PV) given the 54-month interest rate is currently 4%, with a volatility of 120 basis points (bps). Explain, using equations with properly-defined mathematical notation, how to map this cash flow to vertices at 4 years and 5 years, in such a way that the volatility of the present value of the mapped cash flow remains at 120 bps. Suppose the 4-year rate has a volatility of 110 bps and the 5-year rate has a volatility of 150 bps, and their correlation is 0.9. How much should be mapped to each vertex. Give your answer in PV terms and round your answers to whole $ values.
a) Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. What is the future value of the $350 after 4 years? b) Suppose you are deciding whether to buy a particular bond from your local municipality. If you buy the bond and hold it for 4 years, then at that time you will receive a payment of $10,000. Assume the interest rateis6percent. Underwhatcircumstanceswillyoubuythebond?Meaninguptowhatpriceareyou willing to pay.
Theodore D. Kat is applying to his friendly, neighborhood bank for a mortgage of $200,000. The bank is quoting 6%. He would like to have a 25-year amortization period and wants to make payments monthly. What will Theodore’s payments be? 48 LO3
Annuity 1. If a certain machine undergoes a major overhaul now, its output can be increased by 20% - which translates into additional cash flow of $20,000 at the end of each year for five years. If i = 15% per year, how much can we afford to invest to overhaul this machine? 2. You are running a bank. A customer agrees to pay you $100,000 each year with annual interest rate of 10% for 5 years. How much money will you lend to him?
Now assume an investor is negotiating with the bank to pay either a 1.5% interest rate or a 2.0% interest rate on loans advanced. Will she/he be better off with the first or second option? Explain carefully.
A. Assume the interest rate in the bank is 6%. Should Apple Incorporated spend $10,000,000 to build a Research and Development facility that will yield $20 million in ten years? B. You will need $100,000 in seven years to buy a new car. How much money do you need to deposit in the bank now in order to have $100,000 seven years from now if the interest rate is 7%?
According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? O. 1971 O. 1972 O. 1973 O. 1974 O. 1975
Q) arrow_forward Question Asked Aug 4, 2020 1 views Q) Maria purchases a new big screen television for $850 on her VISA card that carries a favorable interest rate of 8.9% on new charges. a)Determine how long it would take her to pay the television off if she plans on making monthly payments of: $50 $75 and $100 b)compute the total amount that the television cost her with each of the different monthly payments. C) Compute how much money she saved overall by making the $100 payment over the $50 payment. Solve all three subparts plz I upvote