MICROECONOMICS-CONNECT PLUS ACCESS
21st Edition
ISBN: 9781260430776
Author: McConnell
Publisher: MCG
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Chapter 18, Problem 4P
To determine
Future value and interest payments.
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48
LO3
Label each of the following behaviors with the correct bias or heuristic. LO8.3 a. Your uncle says that he knew all along that the stock market was going to crash in 2008. b. When Fred does well at work, he credits his intelligence. When anything goes wrong, he blames his secretary. c. Ellen thinks that being struck dead by lightning is much more likely than dying from an accidental fall at home. d. The sales of a TV that is priced at $999 rise after another very similar TV priced at $1,300 is placed next to it at the store. e. The sales of a brand of toothpaste rise after new TV commercials announce that the brand “is preferred by 4 out of 5 dentists.”
4. Does the I in C+I+ G Nx include purchases of stocks and bonds? Why or why not? Lo2 t nnmnonent of I in
Chapter 18 Solutions
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- Suppose 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_forward8. Suppose the computer industry receives an initial extra income for $100. Think about the multiplier process in the first round. I). How much more income will the wire industry receive in the first round? O. $20 O. $25 O. $45 O. $55 ii). How much income will local workers receive? O. $20 O. $25 O. $45 O. $55arrow_forward10. What is the present value of a perpetuity of $100 if the appropriate discount rate is 7%? If interest rates in general were to double and the appropriate discount rate rose to 14%, what would happen to the present value of the perpetuity?arrow_forward
- Please do your own work, don't copy from the internet Q3) (For the first 20 bond problems, assume interest payments are on an annual basis.) Bond value (LO10-3) The Lone Star Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 20 years. Compute the current price of the bonds if the present yield to maturity is 6 percent. 9 percent.arrow_forward5. Suppose the interest rate on a taxable corporate bond is 7 percent while a municipal, tax exempt bond has an interest rate of 5 percent, and they are similar in every other way.a. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond?b. What is the income tax rate that equalizes the after tax return between the corporate bond and the municipal bond.arrow_forwardThe interest rate is 6 percent a year and you expect to receive $1,000 next year and the following year. What is the present value of $1,000 to be received next year? What is the present value of $1,000 tobe received in two years? The present value of $1,000 to be received next year is $ ____. >>>>Answer to 2 decimal places.arrow_forward
- According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? O. 1971 O. 1972 O. 1973 O. 1974 O. 1975arrow_forwardSuppose that you are obtaining a personal loan from your uncle in the amount of $20,000 (now) to be repaid in two years to cover some of your college expenses. If your uncle usually earns minimum 8% profit (annually) on his money, which is invested in various sources. 1) What minimum lump-sum payment two years from now would make your uncle happy? 2) If you pay yearly, how much should you pay each year? 3) If you pay every six months, how much should you pay every six months?arrow_forwardHow is L = 5.5? Please explain extensivelyarrow_forward
- Assume that an individual expects to work for 40 years andthen retire with a life expectancy of an additional 20 years.Suppose also that the individual’s earnings increase at a rateof 3 percent per year and that the interest rate is also 3 percent(the overall price level is constant in this problem). What(constant) fraction of income must the individual save ineach working year to be able to finance a level of retirementincome equal to 60 percent of earnings in the year just priorto retirement?arrow_forward15. Consider a government bond with a face value of $10 000, and a present value of $9500. If this bond is offered for sale at $9600, then the lack of demand for this bond will drive the price down until it reaches its equilibrium market price of $9500. individuals will purchase the bond at the offer price which will drive the market rate of interest down. the equilibrium market price of this bond has been achieved. the excess demand for the bond at $9600 will drive the price up to the face value of the bond. individuals will purchase the bond at the offer price which will drive the market rate of interest uparrow_forward-Assume an interest rate of 5%. What is the maximum amount an individual would be willing to give up today in exchange for $1, paid 30 years in the future? -Suppose the government has promised to pay $100 billion dollars in benefits 10 years from now. Assuming an interest rate of 4%, what is the present discounted value (PDV) of the obligation? Answer in billions of dollars, rounded to two decimal places.arrow_forward
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