When considering where to go to lunch, you think back to your past experiences at different restaurants. This is an example of what type of information search? myopia external sources cross sources internal sources If Allen's Axe Throwing makes a net profit of $100,000 on a $50,000 investment, what is their return on investment? $1 ROI for every $1 invested $4 ROI for every $1 invested $2 ROI for every $1 invested $3 ROI for every $1 invested

When considering where to go to lunch, you think back to your past experiences at different restaurants. This is an example of what type of information search? myopia external sources cross sources internal sources If Allen's Axe Throwing makes a net profit of $100,000 on a $50,000 investment, what is their return on investment? $1 ROI for every $1 invested $4 ROI for every $1 invested $2 ROI for every $1 invested $3 ROI for every $1 invested

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Savings,investment And The Financial System

Section: Chapter Questions

Problem 7PA

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What are some reasons why the investment strategy of a 30-year-old might differ flow the investment strategy of a 65-year-old?
4. Ted Baxter runs a small, very stable newspaper company insouthern Oregon. The paper has been in business for 25 years.The total value of the firm’s capital stock is $1 million, which Tedowns outright. This year the firm earned a total of $250,000after out-of-pocket expenses. Without taking the opportunitycost of capital into account, this means that Ted is earning a25 percent return on his capital. Suppose that risk-free bondsare currently paying a rate of 10 percent to those who buy them.d. How much excess profit is Ted earning?
4. Ted Baxter runs a small, very stable newspaper company insouthern Oregon. The paper has been in business for 25 years.The total value of the firm’s capital stock is $1 million, which Tedowns outright. This year the firm earned a total of $250,000after out-of-pocket expenses. Without taking the opportunitycost of capital into account, this means that Ted is earning a25 percent return on his capital. Suppose that risk-free bondsare currently paying a rate of 10 percent to those who buy them.a. What is meant by the “opportunity cost of capital”?b. Explain why opportunity costs are “real” costs even thoughthey do not necessarily involve out-of-pocket expenses. c. What is the opportunity cost of Ted’s capital?d. How much excess profit is Ted earning?
As and example of a possible investment restriction, an insurer mah only be allowed to invest up to 20 percent of its assets in common stock. What penalty is imposed upon the insurer that invests 30 percent of available assets in common stock?A. The additional 10 percent must be disposed of by year endB. The state regulators would impose a 10 percent fine on the insurer.C. The additional 10 percent would be a nonadmitted asset.D. The additional 10 percent would only be listed at cost.
When company executives buy and sell stock basedon private information that they obtain as part oftheir jobs, they are engaging in insider trading.a. Give an example of inside information that mightbe useful for buying or selling stock.b. Those who trade stocks based on insideinformation usually earn very high rates ofreturn. Does this fact violate the efficient marketshypothesis?c. Insider trading is illegal. Why do you supposethat is?
(1) Do you think you currently have the disciplineneeded to control your spending in order to free upcash for regular investing? If not, what changes couldyou make? (2) If someone gave you a “hot tip” on astock, how would you go about researching theopportunity before making an investment decision?
Carly wants to buy and operate an ice-cream truckbut doesn’t have the financial resources to start thebusiness. She borrows $20,000 from her friendFreddie, to whom she promises an interest rateof 7 percent, and gets another $30,000 from herfriend Sam, to whom she promises a third of herprofits. What best describes this situation?a. Freddie is a stockholder, and Carly is abondholder.b. Freddie is a stockholder, and Sam is abondholder.c. Sam is a stockholder, and Carly is a bondholder.d. Sam is a stockholder, and Freddie is abondholder.
22.Use the table below that shows the rate of return and R&D spending for a hypothetical firm. Assume the interest-rate cost of funds is 6%. Expected rate of return (%) R&D (millions of $) 15 0 12 10 9 20 6 30 3 40 (a)Graph the marginal cost and marginal benefit curves of R&D spending in the graph below. Be sure to label the axes. What is the optimal level of R&D spending? (b)Now assume that the interest-rate cost of funds is 9%. Show on the graph what happens to the interest-rate cost of funds curve. What is the optimal level of R&D spending?
5 2.Asymmetric Information. Now let’s examine the impact of asymmetric information on thecreditmarket equilibrium. Specifically, in this question we assume that Anderson is not able toobserveor enforce the project that the borrower chooses. As a result, the loan contract can onlyspecifythe interest rate (not the project). Everything else remains as in problem 1.a.What type of asymmetric information problem does Anderson face? Write a shortexplanation justifying your answer.
Suppose the government believes that interest rates are too high and thatthis is deterring investment by firms. The government introduces a maximum interest rate of 6%:no saver may charge more than 6% on any loan that they make. Will this policy lead to additionalinvestment by firms? Draw a diagram to illustrate the consequences of this policy.
2. The following data of a particular firm choosing a netput vector at different prices was collected during the last financial period: at prices (1, 1), the firm’s netput vector is (−2, 5). At prices (3, 1), the firm’s netput vector is (−1, 2). At prices (1, 2), the firm’s netput vector is (−4, 10). a) Is this behaviour consistent with the profit-maximising model of the firm? b) Draw a precise graph of the largest possible production possibility set Z based on this data. Briefly describe how you obtained it
Suppose that private savings and investment functions are given by: S = −c0 + (1 − c1)(Y − T) I = b0 + b1Y with G = T = 0. Assume 0 < b1 < 1−c1 < 1 (i.e. that slope of the savings curve is steeper than that of the investment curve). (a) Model Basics: Draw a graph of the investment=savings model with S,I on the vertical axis, and Y on the horizontal axis. Clearly label the 1) specific values of each intercept, 2) specific values of the slopes of each curve. (b) Suppose consumers choose to save more by reducing consumption at any given level of income, so that c0 declines. Show this on the graph. What are the effects of this change on 1) output, 2) the level of private savings, 3) the level of investment. (c) Briefly describe the economic intuition behind your results. Why is this called the paradox of thrift? (1-2 sentences is fine). (d) Deriving the Model: Show that the equilibrium condition Y = C + I + G implies I = S + T − G