uppose that a risk-free investment will make three future payments of $500 in 1 year, $500 in 2 years, and $500 in 3 years.   Instructions: Round your answers to 2 decimal places.   a. If the Federal Reserve has set the risk-free interest rate at 16 percent, what is the proper current price of this investment?        $   b. What is the price of this investment if the Federal Reserve raises the risk-free interest rate to 18 percent?        $

ECON MICRO
5th Edition
ISBN:9781337000536
Author:William A. McEachern
Publisher:William A. McEachern
Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance
Section: Chapter Questions
Problem 1.3P
icon
Related questions
Question

Problem 17-03 (algo)

Suppose that a risk-free investment will make three future payments of $500 in 1 year, $500 in 2 years, and $500 in 3 years.

 

Instructions: Round your answers to 2 decimal places.

 

a. If the Federal Reserve has set the risk-free interest rate at 16 percent, what is the proper current price of this investment?

 

     $

 

b. What is the price of this investment if the Federal Reserve raises the risk-free interest rate to 18 percent?

 

     $

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 6 images

Blurred answer
Knowledge Booster
Stock
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
ECON MICRO
ECON MICRO
Economics
ISBN:
9781337000536
Author:
William A. McEachern
Publisher:
Cengage Learning
Principles of Economics 2e
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Principles of Economics, 7th Edition (MindTap Cou…
Principles of Economics, 7th Edition (MindTap Cou…
Economics
ISBN:
9781285165875
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:
9781285165912
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours…
Brief Principles of Macroeconomics (MindTap Cours…
Economics
ISBN:
9781337091985
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning