PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 9, Problem 6P
(a)
To determine
Determine whether the Persons E and V will purchase a house or not.
(b)
To determine
Determine whether the Persons E and V will purchase a house or not.
(c)
To determine
Determine whether the Persons E and V will purchase a house or not.
(d)
To determine
Determine whether the individuals E and V will purchase the house or not.
(e)
To determine
Explain why home building companies dislike high interest rates.
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Suppose that upon graduation you decide to buy a house in Riverside. You have $5,000 of cash savings that you can put for a down payment. Let’s ignore other fees and taxes. The fixed annual interest rate available for your 30 years mortgage loan is 4.0%. Given your disposable income, you are willing to make a monthly mortgage payment of up to $1,500 during the loan period. What would be the maximum price of a house you may look for? Show your calculation steps, assuming that your mortgage payments start right away.
Suppose Neha is a sports fan and buys only baseball caps. Neha deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $10.00.
Fill in the chart: 0% 5% 8%
Number of Caps Neha Can Purchase after One Year
Choices: 291, 305, 315, 582
Choices: 291, 300, 305, 582
Choices: 291, 305, 315, 582
Real Interest Rate
When the rate of inflation is less than the interest rate on Neha's deposit, the purchasing power of her deposit __________ (options: falls, rises, remains the same) over the course of the year.
Economics
You are planning to take out a 5 hundred
thousand dollar fixed-rate mortgage with a 30-
year term and a stated annual mortgage rate of
5.7 percent. Your lender offers to lower your stated
annual interest rate by one-quarter of a
percentage point for each discount point you buy.
What will your monthly payment be if you buy 3
discount points? Round your answer to the nearest
dollar.
Answer the following based on the information
from the previous question. Approximately how
many months do you need to stay in the mortgage
to make it worthwhile to pay the discount points?
Round your answer to two decimal places.
Chapter 9 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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Similar questions
- Suppose you bought a condo for $100,000 financing it with a $20,000 down payment of your own funds and an $80,000 mortgage loan from a bank. Now, instead of (a) or (b), suppose the value of the condo fell from $100,000 to $70,000. Assuming you paid $100,000, financing it with $20,000 of your own money and $80,000 with a mortgage loan, and ignoring interest and other costs, calculate your rate of return on your asset (ROA) and your rate of return on equity (ROE). What is the value of your equity stake in the condo after the price fall?arrow_forwardGreg wants to have $50 000 in five years. He has $20 000 today to invest. The bank is offering five- year investment certificates that pay interest compounded quarterly. What is the minimum nominal interest rate he would have to receive to reach his goal? (Ctrl) -arrow_forwardSuppose Latasha is a sports fan and buys only baseball caps. Latasha deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $10.00. Initially, the purchasing power of Latasha's $3,000 deposit is baseball caps. For each of the annual inflation rates given in the following table, first determine the new price of a baseball cap, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Latasha's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest baseball cap. For example, if you find that the deposit will cover 20.7 baseball caps, you would round the purchasing power down to 20 baseball caps under the assumption that Latasha…arrow_forward
- 9. Kathy buys a television set from a merchant who ask P1,250 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? 10. Find the amount due at the end of 15 months whose present value is P2,000 at 5% simple discount.arrow_forwardYou're currently 20 years old, anticipate a natural life of 80 years and a work life of 40 years (retire at the age of 60). You estimate your income from work will be $4,500,000. a. What is your level of permanent consumption? b. What is the level of savings you will have when you retire? c. If at the age of 45 you receive a bonus of $100,000, how will this impact your permanent consumption? Over what time period.arrow_forwardSaving is that part of income which is not consumed. True/Falsearrow_forward
- You borrow $1,000 from a bank to buy a car to use in your pizza delivery business. IS THIS AND INVESTMENT OR SAVINGSarrow_forwardSuppose Eleanor is a sports fan and buys only baseball caps. Eleanor deposits $3,000 in a bank account that pays an annual nominal interest rate of 15%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $15.00. Initially, the purchasing power of Eleanor's $3,000 deposit is baseball caps.arrow_forwardSuppose you have a monthly income of $1000, $850 in monthly expenses, and you can put money in a savings account that yields a monthly interest rate of 4%. Now suppose you have an opportunity to invest your money at a 12% return. Further suppose you are able to borrow at 3%. Assuming you invest all of your money and then borrow against your future payout, show your trade-off between present and future consumption. If you still need to consume $850 in the present, how much will you have to spend in the future?arrow_forward
- Determine your personal savings if: $9800 is the personal consumption expenditure. $12,000 is the personal discretionary income.arrow_forwardHigher interest rates are likely to Group of answer choices decrease consumer spending and increase consumer saving. have no effect on consumer spending or saving. increase consumer spending and decrease consumer saving. decrease both consumer spending and consumer saving.arrow_forwardGreg wants to have $50 000 in five years. He has $20 000 today to invest. The bank is offering five-year investment certificates that pay interest compounded quarterly. What is the minimum nominal interest rate he would have to receive to reach his goal?arrow_forward
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