EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 16, Problem 13DQ
To determine
Interest rate.
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Your grandparents decide they would like to put aside money to help support each of their grandchildren's educations. Assume that
they would like to give each of their grandchildren $18000; that the money will be given when each grandchild turns 18; and that the
money is in an account that earns 4.9%. They would like to know how much money they would need to set aside each time one of their
grandchildren is born to be able to make this possible. How would your grandparents solve for P?
$18000(F|P, 4.9%,18)
O $18000(P|F, 4.9%,18)
Neither
Assume that you borrow $5,000, and you pay back the $5,000 plus $250 in interest at the end of the year. Assuming no inflation, what is the real interest rate? What would the interest rate be if the $250 of interest had been discounted at the time the loan was made? What would the interest rate be if you were required to repay the loan in 12 equal monthly installments?
Suppose that you earn $320 in year 1 and will ean $720 in year 2. If you borrow money against your future income you will have and additional $576 to
spend in year 1, and if you lend all of your current income you will have and additional $400 to spend in year 2. In both years you consume only food which
costs $1 per kilogram in each year.
What is the interest rate that you borrow and lend at?
R=
Let your MRS for food in year 1 with food in year 2 be given by the formula
where F is the amount of food consumed this year and F is the amount
of food consumed next year.
Calculate your consumption bundle:
F =
F =
Suppose the interest rate at which you can borrow and lend changes to 20%.
Calculate your new consumption bundle:
F =
F2 =
Which interest rate is preferred?
The initial interest rate found in part 1
O The new interest rate, 20%
Chapter 16 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
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