Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 37, Problem 12DQ
To determine
Difficulty in actively managed funds to generate high rate of return .
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Theodore D. Kat is applying to his friendly,
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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.”
Suppose 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?
Chapter 37 Solutions
Economics (Irwin Economics)
Ch. 37 - Prob. 1DQCh. 37 - Prob. 2DQCh. 37 - Prob. 3DQCh. 37 - Prob. 4DQCh. 37 - Prob. 5DQCh. 37 - Prob. 6DQCh. 37 - Prob. 7DQCh. 37 - Prob. 8DQCh. 37 - Prob. 9DQCh. 37 - Prob. 10DQ
Ch. 37 - Prob. 11DQCh. 37 - Prob. 12DQCh. 37 - Prob. 1RQCh. 37 - Prob. 2RQCh. 37 - Prob. 3RQCh. 37 - Prob. 4RQCh. 37 - Prob. 5RQCh. 37 - Prob. 6RQCh. 37 - Prob. 7RQCh. 37 - Prob. 8RQCh. 37 - Prob. 9RQCh. 37 - Prob. 10RQCh. 37 - Prob. 1PCh. 37 - Prob. 2PCh. 37 - Prob. 3PCh. 37 - Prob. 4PCh. 37 - Prob. 5PCh. 37 - Prob. 6P
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- How much would you pay for a perpetual bond that pays an annual coupon of $200 per year and yields on competing instruments are 5%? You would pay $. (Round your response to the nearest penny.) Part 2 If competing yields are expected to change to 8%, what is the current yield on this same bond assuming that you paid $4,000? The current yield is %.(Round your response to the nearest integer.) Part 3 If you sell this bond in exactly one year, having paid $4,000, and received exactly one coupon payment, what is your total return if competing yields are 8%? Your total return is %.arrow_forwardSince 2009, how much has been borrowed through the federal funds market? O. $787 million O. $43 billion O. $1,148 billion Incorrect O. $0arrow_forward5. Suppose Alex and Spenser each invest $5,000 in the same stock. Alex invests directly and earns 5% a year. Spenser uses a retirement fund, which charges an administrative fee equal to 0.25% on managed assets, and earns 4.75%.a) At the end of one year, how much will Alex and Spenser have?b) If Alex and Spenser leave their investments in place for 30 years, with annual compounding ofthe interest, how much more will Alex have than Spenser at the end of the 30-year period?arrow_forward
- Suppose that, holding yield constant, investors are indifferent as to whether they hold bonds issued by the federal govemment or bonds issued by state and local governments (that is, they consider the bonds the same with respect to default risk, information costs, and liquidity) Suppose that state governments have issued perpetuities (or consoles) with $78 coupons and that the federal govemment has also issued perpetuities with $78 coupons. If the state and federal perpetuites both have after-tax yields of 8%, what are their pre-tax yields? (Assume that the relevant federal income tax rate is 31.13%) * The pre-tax yield on the state perpetuity will be______________% * The pre-tax yield on the federal perpetuity will be_______________%arrow_forward1.Which of these is an example of an index (and would have a corresponding Index Fund)? Question options: Apple stock US Treasury bonds A target retirement fund The S&P 500 2. Suppose you put $1,000 in an account that earns 5% interest per year, every year. You never invest additional money and you never withdraw money or interest payments. So in the first you, you earn $50 in interest. In Year 4, how much will this account earn? Question options: Less than $50 More than $50 $50 This is too hard.arrow_forwardHow much would you pay for a perpetual bond that pays an annual coupon of $200 per year and yields on competing instruments are 5%? You would pay $. Part 2 If competing yields are expected to change to 8%, what is the current yield on this same bond assuming that you paid $4,000? The current yield is %.(Round your response to the nearest integer.) Part 3 If you sell this bond in exactly one year, having paid $4,000, and received exactly one coupon payment, what is your total return if competing yields are 8%? Your total return is %.arrow_forward
- 3. You are in the market for a used car and decide to visit a used car dealership. Youknow that the Blue Book value of the car you are looking at is between $14,000 and$18,000.a. If you believe the dealer knows as much about the car as you do, how much areyou willing to pay? Why? Assume that you care only about the expected value ofthe car you will buy and that the car values are symmetrically distributed.b. Now you believe the dealer knows more about the car than you do. How much areyou willing to pay? Why? How can this asymmetric information problem beresolved in a competitive market?arrow_forwardIf Tim borrows $600 from a payday loan operator and has to pay S775 at the end of 1 month, how much will he have to pay if he were to keep the money for a year on the same terms? O. $12,407 O. $6,321 O. $1,020 O. $12,941arrow_forward4 What is the economic advantage to a trade secret? Please explain why. Of the three valuation methods for an intangible asset discussed in the chapter, which one would you use and why? Regarding Stock Price, explain how it is set at the time of company formation. Describe the key factors that influence stock price before IPO. What is goodwill and how is it different from other intangible assets?arrow_forward
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