Taylor and Charlie currently live in New Orleans. Taylor is currently making $60,000 per year, and Charlie is currently making $40,000 per year. Let’s assume that both live for four periods, and the discount rate is 13%. (e) Now, let’s assume both Taylor and Charlie live for infinite periods. Calculate their present values in each city with this new information, but do not include moving costs this time. (f) Suppose Taylor and Charlie don’t want to take these jobs. Based on your answers in part e, how big does each person’s moving cost need to be to ensure that they wouldn’t move? For simplicity, assume they are each making this decision as if they were single. Hint: You should get an inequality.
Taylor and Charlie currently live in New Orleans. Taylor is currently making $60,000 per year, and Charlie is currently making $40,000 per year. Let’s assume that both live for four periods, and the discount rate is 13%. (e) Now, let’s assume both Taylor and Charlie live for infinite periods. Calculate their present values in each city with this new information, but do not include moving costs this time. (f) Suppose Taylor and Charlie don’t want to take these jobs. Based on your answers in part e, how big does each person’s moving cost need to be to ensure that they wouldn’t move? For simplicity, assume they are each making this decision as if they were single. Hint: You should get an inequality.
Chapter5: Managing Checking And Savings Accounts
Section: Chapter Questions
Problem 2FPC
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Question
Taylor and Charlie currently live in New Orleans. Taylor is currently making $60,000 per year, and
Charlie is currently making $40,000 per year. Let’s assume that both live for four periods, and the
discount rate is 13%.
(e) Now, let’s assume both Taylor and Charlie live for infinite periods. Calculate their present
values in each city with this new information, but do not include moving costs this time.
(f) Suppose Taylor and Charlie don’t want to take these jobs. Based on your answers in part e,
how big does each person’s moving cost need to be to ensure that they wouldn’t move? For
simplicity, assume they are each making this decision as if they were single. Hint: You should
get an inequality.
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