EBK MICROECONOMICS
2nd Edition
ISBN: 9780134458496
Author: List
Publisher: VST
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 5P
To determine
Consequences of using
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years.You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years.
Note:-
Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
Answer completely.
You will get up vote for sure.
Q. 4
Suppose you, owner and CEO of a corporation, are considering a $25 million project that constructs a building in the downtown area of Toronto. The current market price of the similar building is about $20 million. The future price is uncertain. It may be either $28 million or $22 million in one year from now, depending on the economic situation. The company can borrow at a risk-free rate of 5 percent per year. What is the value of this project? Use a binomial model to value this real option.
Suppose a person has a total credit card debt of $1,100 that has a 11 % yearly interest rate. This person also has a savings account with $5,500
that pays 1 % interest per year. Despite the net loss, the person keeps both.
Calculate how many times the person appreciates the $1 of savings more than $1 of credit card debt if the person relates similarly to both values of
percent paid and received, Enter your answer in the box below and round to two decimal places if necessary.
Answer
Keypad
Keyboard Shortcuts
times
Knowledge Booster
Similar questions
- Consider a 25-year loan with an annual interest rate of 7 percent and monthly payments of $1,201.53. The discount points charged by the lender at origination are 3 percent and the cost of borrower title insurance and mortgage insurance are, respectively, 0.5 percent and 2.0 percent of the loan amount. Additional fees paid to other third parties (i.e., not the lender) will equal $4,000. What is the loan amount? What is the lender’s yield/IRR? What is the effective borrowing cost (EBC)? USE EXCELarrow_forwardSuppose you have just inherited $10,500 and are considering different options for investing the money to maximize your return. If you are risk-neutral (that is, neither seek out or shy away from risk), which of the following options should you choose to maximize your expected return? A. Hold the money in cash and earn zero return. B. Invest the money in a corporate bond, with a stated return of 4%, but there is a chance of 9% the company could go bankrupt. C. Put the money in an interest-bearing checking account, which earns 3%. The FDIC insures the account against bank failure. D. Loan the money to one of your friends' roommates, Mike, at an agreed upon interest rate of 7%, but you believe there is a 5% chance that Mike will leave town without repaying you.arrow_forwardIn 1993, Bankers Trust (BT) agreed to lend money to Procter and Gamble (P&G) in return for a spread where the spread is described by equation (1). In other words, the spread represents the interest payment by P&G to BT. 98.5 * 5 yr USTyield 5.78% 30 yr UST price Spread : = ma x| 0, 100 Where 5 yr UST Yield is the yield-to-maturity of a 5- year U.S. Treasury bond; 30 yr UST price is the price of a 30-year U.S. Treasury bond. The CEO of P&G said that the spread does NOT depend on volatility of interest rates. Do you agree? Justify your answer.arrow_forward
- Ever since the Covid-19 pandemic hit the economy the price of gold has been sky high .Today price per gram of Gold is 5291tk. Imagine yourself as a risk averse investor, explain why you would be more or less willing to buy gold under the following circumstances: a) Prices in the gold market become more volatile. b) An additional tax is imposed on all Government bonds. c)Due to Covid-19 epidemic, the economy experiences a recession. d) You just inherited 1000000tk.arrow_forwardRohan decides to invest in bonds instead of stocks because he has heard that bonds are a lower-risk investment. He uses the bond's credit rating to make his investment decisions. Which of the following is true about the risk Rohan faces with his decision? The bonds' value is not affected by inflation because most bonds pay a fixed coupon rate over time. The credit ratings of the bond-issuing companies will not change from one year to the next. The bond issuer may not pay him back because it may go bankrupt or become insolvent. If Rohan chooses bonds from a company with low credit ratings, he's almost certain to have low default risk.arrow_forward31. An analyst is considering the purchase of a Government of Canada bond that will pay its face value of $10 000 in one year's time, but pay no direct interest. The market interest rate is 4% and the bond is being offered for sale at a price of $9400. The analyst should recommend purchasing the bond because the purchase price is more than its present value and is therefore profitable. not purchasing the bond because the buyer could earn an additional $376 by investing the $9400 elsewhere. not purchasing the bond because the purchase price is less than its present value. purchasing the bond because the purchase price is less than its present value and is therefore profitable. not purchasing the bond because the buyer could earn an additional $224 by investing the $9400 elsewhere.arrow_forward
- After graduation, you face a choice. You can work for a multinational consulting firm and earn a starting salary (including benefits) of $40,000, or you can start your own consulting firm using $5,000 of your own savings. If you keep your money in a savings account, you can earn an interest rate of 7 percent. You choose to start your own consulting firm. At the end of the first year, you add up all of your expenses and revenues. Your expenses include $14,000 for rent, $1,000 for office supplies, $24,000 for labor, and $4,500 for telephone expenses. After operating your consulting firm for a year, your total revenues are $88,000. Instructions: Enter your answers as a whole number. a. What is your accounting profit? $ b. What is your economic profit? $ %24arrow_forwardHow would the price of the bond be affected by changing the going market interest rate? (Hint: Conduct a sensitivity analysis of price to changes in the going market interest rate for the bond. Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate. That is an oversimplification, but assume it anyway for purposes of this problem.)arrow_forwardImagine that at age 25 you have the choice to begin to deposit $8000 per year into your 401k. You will retire at 65. The 401k grows at (an average of) 6% per year (it compounds yearly). Say that your utility for money is just the value of money: u(x) = x. Say that you have a “standard” discount rate of 0.95, which choice would an individual make? What is the implied break-even \beta if you have quasi-hyperbolic preferences?arrow_forward
- Last year you purchased a bond with an interest rate of 5 percent. Now the interest rate on the bond market drops to 4%. Then the face value of your bond is lower. people can offer a lower price to buy your bond today. the interest rate you are earning from this bond is lower. you will receive the same amount of coupon payments from the issuer while you are holding the bond. your return on this bond will be higher later when you hold it to the maturity date.arrow_forwardCompounding: the accumulation of a sum of money when the interest earned on the sum earns additional interest. Because of compounding, small differences in interest rates lead to big differences over time. Assume that instead of spending $30,000 on your wedding, you only spend $5,000. You use the remaining $25,000 to buy stocks/bonds and you hold them for 40 years. Calculate the Future Value on $25,000: If your portfolio's rate of return is 8% (i = 0.08), Future Value = If your portfolio's rate of return is 6% (i = 0.06), Future Value = In a 200-word paragraph, please summarize the results of your calculations and list three things that you learned from this exercise.arrow_forwardThe net present value of $1,000 received one year from now will increase with the interest rate. exceed $1,000 as long as the interest rate is positive. exceed the net present value of $1,000 to be received two years from now. equal $1,100 if the current interest (discount) rate is 10 percent.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education