PRINC. OF ECON. LOOSE W/APLIA+COUPON
7th Edition
ISBN: 9781337365635
Author: Mankiw
Publisher: CENGAGE C
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Chapter 27, Problem 1QCMC
To determine
Calculation of present value of money.
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The interest rate is 6 percent a year and you expect to receive $1,000 next year and the following year. What is present value of $1,000 to be received in two years? The present value of $1,000 to be received in two years is $____ Answer to 2 decimal places
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The 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.
Suppose that the interest rate is 5 percent.
Enter your answers rounded to 2 decimal places.
A. What is the future value of $100 four years from now?
$
How much of the future value is total interest?
$
b. By how much would total interest be greater at an interest rate of 7 percent than at an interest rate of 5 percent?
$
Chapter 27 Solutions
PRINC. OF ECON. LOOSE W/APLIA+COUPON
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- Jobu is thinking about borrowing $10,000 from Mike. He promises Mike cash flows (a stream of payments) of $5000 for the next three years. If Jobu’s cost of capital is 15%, what is the Net Present Value of the investment for Mike? Show your calculation clearly.arrow_forwardConsider that you were given a US savings bond that will pay $100 when it matures in ten years. What happens if the interest rate rises to the present value of this bond payment?Why happens if the interest rate rises to the present value of this bond payment? A. Increases in present value B. The current value is unaffected. C. A decrease in present valuearrow_forwardConsider a bond and a stock. The bond will pay out 100,000 at the end of year five. It will pay nothing at the end of years 1, 2, 3, or 4. The stock is for a corporation that makes profits off a patent. It will pay dividends for the next 25 years, 5,000 dollars at the end of each year. After that, the patent expires and the dividends go to zero. a) Suppose the interest rate is zero. What is the present value of each of these two assets? In other words, if you had to pay now, which is worth more? [Note: This requires calculating “present values”; you can use excel and if needed] b) The Fed’s monetary policy raises the interest rate to 2.5%. Which is worth more? c) The Fed’s monetary policy raises the interest rate to 5%. Which is worth more? d) What is the intuition for the different results in a), b) and c)? e) Do the above results suggest that, by raising the interest rate, the Fed can powerfully affect the price of assets like stocks?arrow_forward
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