What is the law of demand? A) As the price of a good increases, its demand decreases B) As the price of a good increases, its demand increases C) Demand remains constant regardless of price changes D) Demand is directly proportional to supply
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- Why might it be difficult for a buyer and seller to agree on a price when imperfect information exists?Identify and explainthe three factorsaffecting the riskstructure of interestratesAssume that a customer shops at a local grocery store spending an average of $200 a week, resulting a retailer profit of $10 each week from this customer. Assuming the shopper visits the store all 52 weeks of the year, calculate the customer lifetime value if this shopper remains loyal over a 10-year lifespan. Also assume a 5 percent annual interest rate and no initial cost to acquire the customer. Describe ways marketers can increase the lifetime value of a customer.
- You want to buy a life insurance so that your family will receive $25,000 per year in interest. The interest rate expected from banks is 11%, while inflaation rate is expected to be 4% per year. a. What is the effective interest rate? (7.5%, 6.73%, 3.6%, or 2.75%) b. How much insurance should you buy? ($333,333, $694,444, $371,471, or $909,090) provide complete solution pleaseRecognize theprincipal–agentproblem arising frommoral hazard in equitycontracts and summarize the methods forreducing it.Compared to the pension assumptions Stereo Warehouse used in 2008, which of thefollowing pairs of assumptions used in 2009 is most likely internally inconsistent?A . Estimated future salary increases, infl ationB . Discount rate, estimated future salary increasesC . Expected long-term rate of return on plan assets, discount rate
- PJ has an one-year insurance policy with a deductible of D and a maximum reimbursement of U, each applied to total annual losses. PJ experiences two losses (L1 and L2) during the year. What is the total out-of-pocket amount for PJ? (Hint: list all three possible scenarios.)Imagine that you are a completely risk indifferent investor. A client would like topay you and gives you two options how they would be willing to pay.1. An immediate payment of $50,0002. A monthly payment of $3,000 over the next four years.You believe that the interest rate over the next four years will be 6%. Whichoption do you prefer? One of your advisors thinks that it will be rather 8%, whileanother one calculates it in a more conservative way and expects rather 4%.Would following one of them change your decision? In which way?A ten-year term insurance is be issued to a life aged 50. The sum insured is $200,000 and payable immediately upon death. Premium payments are annual in advance. a) Using the SOA Standard Ultimate Life Table at i = 5% and UDD, compute the net annual premium determined by the equivalence principle. b) Find the probability that this contract makes a profit. c) Compute the gross premium determined by the equivalence principle if the initial expense is $500 plus 10% of the first premium, and if there is a renewal expense of 2% of the annual premium payment for the second and all subsequent premium payments.
- Required:1. If a farmer chose Technique A, what would happen?a. Possibility of a lower yield and lower riskb. Possibility of a higher risk and higher yieldc. Possibility of lower yield with higher risk but sustainabled. Possibility of higher yield and lower riske. No answer 2. If a farmer chose Technique B, what would happen?a. Possibility of a lower yield and lower riskb. Possibility of a higher risk and higher yieldc. Possibility of lower yield with higher risk but sustainabled. Possibility of higher yield and lower riske. No answer8. Question 1 Fatu took out an endowment policy. The first annual payment was Rx, whereafter it increased yearly by R1 700. After 20 years the policy paid out R1 005 962. The applicable yearly interest rate is 10%. The value of x is approximately A. R11 816. B.R17 564. C.R6 500. D.R564. Question 2 Daniel asks to reschedule the compensation in three payments,the first payment now ,the second payment twice the size of the first payment for four years from now and the third payment three times the size of the first payment nine years from now.The boxing fund agrees on condition that the interest rate changes to 10.95% per year compounded monthly .The amount to the nearest hundred rand that Daniel can expect to receive four years from now is A R 864 000 B.R 557510 C.184 800 D.369 600A company is considering implementing a project that generates a guaranteed income of 1000 from next year and every year thereafter, while the project has an investment cost of 10,000 today. In addition, there is a one-off maintenance cost of 20 000 in exactly 10 years time. Assume that the risk-free interest rate is 3 percent. Is the project profitable to implement?