EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 16, Problem 4RQ
To determine
Future value of a sum of money.
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5. Suppose after you graduate from Algoma University, you find a job that pays you $75,000 a
year. Further suppose that you take out a home equity loan of $360,000 for 30 years at an
annual interest rate of 3.5 percent, with payments to be made monthly. What will your monthly
payments be? If the interest rate increases from 3.5 percent to 5.0 percent, how much will your
monthly payments increase? Instead of 30 years, you decide to pay your loan in 25 years, what
will your monthly payments be if the interest rate remains at 3.5 percent or increases to 5.0
percent. Develop a chart comparing these monthly payments. Show your work.
Please use the graph to answer the questions.
Given the market conditions, what will the prevailing
interest rate be?
O 6%
18%
O 2%
10%
Given the market conditions, how much money is
borrowed in the loanable funds market?
O $10 billion.
$50 billion
O$90 billion
O $70 billion
$30 billion.
Interest rate (%)
18-
16-
14-
12.
10.
8-
6-
+
et
0
Demand
Supply
60 70 80 90
10 20 30 40 50
Quantity of loanable funds (in billions of dollars)
You have $40,000 of current income and $60,000 of future income. The interest rate between the current and
future period is 5 percent. What is the maximum amount you could consume in the future?
O $100,000
O $107,000
O $102,000
O $110,000
Chapter 16 Solutions
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- QUESTION 19 You lend your sister's daughter $2,000 for a year, if at the end of the year she pays you $2,180. The interest rate you are charging her is O 1.1%. O 9%. O 10%. O 20%.arrow_forwardThe Atlantic Investment Tax Credit is a 10% tax credit available to businesses that make specific investments in the Atlantic region and the Gaspe Peninsula. The graph shows the market for loanable funds. Show the impact of this tax credit by moving the proper curve appropriately in the graph. The new equilibrium interest rate is The quantity of loanable funds is $ 1 Incorrect 5 Incorrect I billion Which statement accurately describes the impact of the Atlantic Investment Tax Credit? % Firms find that more investments are profitable and increase their demand for loanable funds. As a result, the interest rate rises. Interest rate (%) 10 10 3 2 0 0 5 10 15 20 25 30 35 Quantity of loanable funds (in billions) 40 Supply 45 Demand 50arrow_forward5. LO 2,5 A consumer receives income y in the current period and income y' in the future period, and pays taxes of t and t' in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we-y+t, with we denoting lifetime wealth. Use diagrams to determine the effects on the consumer's current consumption, future consumption, and saving of a change in x, and explain your results.arrow_forward
- Manipulate the graph to show what will happen to supply and demand in the market for loanable funds when the government budget deficit increases, changing the equilibrium quantity of loanable funds by 3 percentage points. Ceteris paribus, what is the new interest rate? interest rate: Ceteris paribus, private investment would increase. not change. decrease. % 20 10 9 Supply 8 Interest rate (%) 7 CO 5 LO 3 2 1 0 0 2 Demand 4 6 8 10 12 14 16 18 20 22 24 26 28 Quantity of loanable funds (% of GDP)arrow_forwardSuppose that the interest rate at which Joanne can borrow and lend is 10 percent per year, but she can earn $22,000 with a high school degree. Her tuition and books at college cost $6,000 and her living expenses are $15,000 per year. Savings are deposited at the end of the year they are earned and receive (compound) interest at the end of each subsequent year. Similarly, the loans are taken out at the end of the year in which they are needed, and interest does not accrue until the end of the subsequent year. Now that the interest rate has risen, should Joanne go to college or go to work?arrow_forwardSuppose that the demand for loanable funds for car loans in the Milwaukee area is $12 million per month at an interest rate of 1O percent per year, $13 million at an interest rate of 9 percent per year, $14 million at an interest rate of 8 percent per year, and so on. If the supply of loanable funds is fixed at $15 million, what will be the equilibrium interest rate? Instructions: Enter your answer as a whole number. percent per yeararrow_forward
- 10. If an individual takes out a $300,000 mortgage from the bank and the loan agreement stipulates that the interest rate on the loan is 15%. How much does the borrower needs to pay? * O $300,000 O $315,000 O $340,000 O $345,000arrow_forwardFor this question, assume that the interest rate is greater than 0. Given this information and the information about the payments provided below, rank the following three sequences of payments according to their present value: "X" "Y" "Z" 2005 $190 $200 $210 2006 $200 $200 $200 2007 $210 $200 $190 O A. Y>X>z O B, Z>Y>X ocZ>X>Y O D.X>Y>Z O E. X>Z>Yarrow_forwardQUESTION 5 You are currently thinking about setting up a retirement fund. You want to deposit $4000 every year for 35 years with an annual increase of $750. At the end of the 35 years, how much will you have accumulated for your retirement? Consider an interest rate of 6%. O 478,720.87 158,649.68 O 1,401,173.87 O 309,753.46arrow_forward
- KATHY BUYS A TELEVISION SET FROM A MERCHANT WHO ASKS P1,500.00 AT THE END OF 60 DAYS (CASH IN 60 DAYS). KATHY WISHES TO PAY IMMEDIATELY AND THE MERCHANT OFFERS TO COMPUTE THE CASH PRICE ON THE ASSUMPTION THAT MONEY IS WORTH 8% SIMPLE INTEREST. WHAT IS THE CASH PRICE TODAY? O a. P1,480.26 O b. P1,408.26 O c. P1,048.26 O d. P1,840.26arrow_forwardFind the present value of $25,000 quarterly payments payable at the beginning of each quarter. Assume money is worth 14%, m=4 for 6 years. Select one: O A. $948,746.42 O B. $916,663.20 O C. $401,459.19 O D. $415,510.26arrow_forwardThe following table shows the average nominal interest rates on six-month Treasury bills between 1971 and 1975, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1971 to 1975. (All rates are rounded to the nearest tenth of a percent.) Nominal Interest Rate Inflation Rate Year (Percent) (Percent) 1971 4.5 4.2 1972 4.5 3.3 1973 7.2 6.3 1974 8.0 11.0 1975 6.1 9.1 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org. On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 8.0 7.0arrow_forward
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