ECON 1010 Lecture 9: Chapter 7: Finance, Saving, and Investment

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apricotferret804

12 Feb 2019

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Interest on capital and present value we will not be tested on concept (only equation) of present value, professor wants us to understand the principle. Present value tells you what money earned in the future is worth today. it allows us to compare the prices we pay for today"s investment against the investment"s future earnings. For a smart choice, the present value of the investment"s future earnings is greater than the investment"s price today. Example- if somebody is going to offer you a building that is going to generate a stream of future earnings, how much will you be willing to pay for it today. It is pretty simple rule, if present value is greater than investment price then go for it , if not then forget about it. The present value of a future amount of money is the amount that if invested today, will grow as large as the future amount, taking account of earned interest.

Related Questions

You have $35,259.87 in a brokerage account, and you plan to deposit an additional $2,500 at the end of every future year until your account totals $350,000. You expect to earn 11.7% annually on the account. How many years will it take to reach your goal? Round your answer to the nearest whole number.

2)What is the future value of a 10%, 5-year ordinary annuity that pays $550 each year? Round your answer to the nearest cent.

If this were an annuity due, what would its future value be? Round your answer to the nearest cent.

3)An investment will pay $100 at the end of each of the next 3 years, $300 at the end of Year 4, $500 at the end of Year 5, and $700 at the end of Year 6. If other investments of equal risk earn 9% annually, what is its present value? Round your answer to the nearest cent.

What is its future value? Round your answer to the nearest cent.

4)You want to buy a car, and a local bank will lend you $10,000. The loan would be fully amortized over 6 years (72 months), and the nominal interest rate would be 10%, with interest paid monthly. What is the monthly loan payment? Round your answer to the nearest cent.

What is the loan's EFF%? Round your answer to two decimal places.

Present and Future Values of Single Cash Flows for Different Periods

Find the following values, using the equations, and then work the problems using a financial calculator to check your answers. Disregard rounding differences. (Hint: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.)

An initial $800 compounded for 1 year at 5.6%. Round your answers to the nearest cent.

$
An initial $800 compounded for 2 years at 5.6%. Round your answers to the nearest cent.

$
The present value of $800 due in 1 year at a discount rate of 5.6%. Round your answers to the nearest cent.

$
The present value of $800 due in 2 years at a discount rate of 5.6%. Round your answers to the nearest cent.

coralwolf381

1.US manufacturers receive news that profits from current-period investments will be taxed at a higher rate. What effect will this have on the present US current account deficit? NOTE: A decrease in the current account deficit means the current account becomes less negative.

A. The current account deficit will likely decrease (become less negative)

B. The current account deficit will likely increase (become more negative)

C. This will have no effect on the US current account deficit

D. It's impossible to tell what effect this will have on the US current account deficit

2.Which of the following would be consistent with the hypothesis that US productivity growth is causing trade deficits:

A. Increases in stock prices over and above current earnings

B. Increased consumption as a ratio of GDP

C. Both

D. Neither

3.Evaluate the following statement using the model of trade deficits we learned in class: "Our country's trade deficit means that future generations will have to pay other countries back and will have less to consume than if we ran a balanced trade account". This statement is

A False: we can renege on our debts if they become too high.

B True: trade deficits means absolutely less consumption in future periods

C False: while in the future we will have to run trade surpluses if we run a trade deficit in the current period, increased investment means our absolute future consumption may be higher.

D True: trade deficits shift the share of consumption towards the current period and therefore the absolute consumption level in the future must be lower.

4.If a basket of goods in Home costs PH and PF in Foreign, and E is the price of the home currency in terms of the Foreign currency, which of the following is the Purchasing Power Parity equation?

A. PH = PF * E

B. PH / E = PF

C. PH * E = PF

D. PH / PF = E

blackminnow717

Suppose that US Airways aggregate demand curve for seats in this quarter is
Q = 20000-20*P for P < 1000
where P is its price in dollars. Its marginal cost is $100 per passenger.
(i) What is US Airways prot-maximizing price?
(ii) When US Airways sets the prot-maximzing price, what is the value of consumer surplus and
deadweight loss? What is the rms prot?

(b) Lets suppose we write demand in a different way. Marginal cost is still $100. Suppose that there are 20,000 potential passengers on the National-Charlotte market. The willingness to pay of an individual potential passenger is uniformally distributed between $0 and $1000, and a passenger will travel if and only if the price set by US Airways, which has to be the same for all passengers, is less than their willingness to pay.

(i) What will be the quantity of seats sold (i.e., number of travellers) if US Airways sets a price of $100? $550 dollars?

(ii) What is the rms aggregate demand curve (i.e., given an expression like the one above)?

(iii) What would be its aggregate demand curve if valuations (i.e., willingness to pay) were uniformally distributed between $0 and $800? In this case what would be the prot-maximizing price, the consumer surplus, deadweight loss and prot?

(c) It takes about 7.5 hours to drive from DC to Charlotte. For business travellers driving is not an option. Suppose that there are 10,000 potential business travellers with willingness to pay uniformally distributed between $0 and $1000. There are 10,000 potential leisure travellers with willingness to pay to go to Charlotte also uniformally distributed between $0 and $1000, but they will drive if US Airways charges a price of more than $200 (i.e., you can think of the e

ECON 1010 Lecture 9: Chapter 7: Finance, Saving, and Investment

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