LSC CUMBERLAND EC202 MICRO>PKG<
21st Edition
ISBN: 9781260586992
Author: McConnell
Publisher: MCG
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Question
Chapter 18, 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
is based on the notion that a dollar paid in the future is less valuable than a dollar paid today.
The present value of a loan in which $1000 is to be paid out a year from today with the interest rate equal to 1% is $. (Round your response to the neareast two decimal place)
If a loan is paid after two years, and the amount $1000 is to be paid then with a corresponding 2% interest rate, the present value of the loan is $. (Round your response to the neareast two decimal place)
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11:41 AM
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 18 Solutions
LSC CUMBERLAND EC202 MICRO>PKG<
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- ▼ Cash Flow Present Discounted Value Interest Rate is based on the notion that a dollar paid in the future is less valuable than a dollar paid today. Part 2 The present value of a loan in which $3000 is to be paid out a year from today with the interest rate equal to 3% is $.(Round your response to the neareast two decimal place) Part 3 If a loan is paid after two years, and the amount $3000 is to be paid then with a corresponding 1% interest rate, the present value of the loan is $.(Round your response to the neareast two decimal place)arrow_forwardSuppose you win the Powerball lottery this year, which is worth $500 million. You can choose to take a lump sum now of $475 million or you can "annuitize" your winnings. Annuitization means that you will receive the total jackpot money in 5 equal annual payments of $100 million starting next year. Assume that your lottery winnings are not taxed. If the interest rate is 1.0 percent, the present value of the 5 equal payments is $ million. (Round your response to two decimal places.)arrow_forwardSuppose that you eam $250 in year 1 and will ean $448 in year 2. If you borrow money against your future income you will have and additional $400 to spend in year 1, and If you lend all of your current income you will have and additional $280 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= F2 where F is the amount of food consumed this F1 Let your MRS for food in year 1 with food in year 2 be given by the formula year and Fo is the amount of food consumed next year. Calculate your consumption bundie: F1 = F2 = %3! Suppose the interest rate at which you can borrow and lend changes to 40%. Calculate your new consumption bundle: %3D Which interest rate is preferred? O The initial interest rate found in part 1 The new interest rate, 40%arrow_forward
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