Indicate whether the statement is true or false, and justify your answer.The internal rate of return is defined as the interest rate that makes the net present value of an investment stream exactly equal to zero.
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Indicate whether the statement is true or false, and justify your answer.
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- Indicate whether the statement is true or false, and justify your answer.Consider two investment streams w and z which pay out some amount, w(t) and z(t), in each period t. (The amount may be negative in some periods.) If the interest rate is exactly equal to the internal rate of return of w(t), the net present value of choosing w over z is zero.Indicate whether the statement is true or false, and justify your answer. 1. The internal rate of return is defined as the interest rate that makes the net present value of an investment stream exactly equal to zero. 2. In part, physicians’ salaries are higher than secretaries’ salaries because it takes more years to train to become a physician than it does to become a secretary. 3. The fact that practicing surgeons who have finished residency earn more than practicing pediatricians implies that the rate of return to choosing surgery exceeds the rate of return to choosing pediatrics for a medical school graduate.Determine which of the two investment projects of Problem 5 the manager should choose if the discount rate of the firm is 30 percent. Additional information. Problem 5 states determine which of two investment projects a manager should choose if the discount rate of the firm is 10 percent. The first project promises a profit of $100,000 in each of the next four years, while the second project promises a profit of $75,000 in each of the next six years.
- Consider now the two-period model in general equilibrium, but with asymmetric information on the firm side. Derive the equilibrium condition and explain the effects of an increase in the risk premium for the demand of investment.Suppose you buy a house for $250,000. One year later, the market price for the house has fallen to $200,000. What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?State whether a given sentence is true or false and justify your choice using no more than two sentences. “Investors will demand a lower risk premium to hold bonds during recessions.”
- Interest rate risk refers to changes in the bond's ___________ (coupon rate, credir rating, par value, or yield to maturity) , whereby a decrease in that item causes bond values to _______________ (increase, decrease, remain constant, or vary randomly)If Peregrine consumes(1,500,880)and earns(1,300,1,100)and if the interest rate is10%, the present value of his endowment isAssuming a mix of present and future consumption is preferred, ANY consumer who starts at point A will gain utility from a rise in interest rates. is it true or false
- Consider the Consumption and Savings model with random future income. The utility function of the individual is: u(C0, C1) = (C0) + (C1)1/2, where C0 is present consumption expenditure and C1 is future consumption. Let the present income be $5, the interest rate in the financial market r = 5%, and the probability distribution of future income Y1 = (1, 2; 1/2 , 1/2). Calculate the expected utility of saving $0 (consume $5 in the present) (use two decimals)To understand the paradox of thrift, it is necessary to assume that investment is unrelated to income TRUE FALSEIn the two-period Fisher model of consumption, suppose that the first period income is $5,000 and the second period income is $5,000 for both Matt and Paola. The interest rate is 10 percent. Matt’s lifetime utility function is C1 + C2 while Paola’s lifetime utility function is C1 + 0.8C2. If there is a borrowing constraint, whose consumption is affected by that?