i $600 today. Zaggy's idea will pay off $690 next year for certain. ose that Zaggy has no savings to fund his idea and has to borrow money from the bar ppose that the interest rate for borrowing and for lending is 12%. Should Zaggy bon y from the bank to fund his idea? ppose that the interest rate for borrowing and for lending is 22%. Should Zaggy bor y from the bank to fund his idea? suppose that Zaggy has $600 in his bank account. ppose that the interest rate for borrowing and for lending is 12%. Should Zaggy witl vings to fund his idea? ppose that the interest rate for borrowing and for lending is 22%. Should Zaggy wit vings to fund his idea? bes the method of financing (whether through savings or debt) appear to affect the anshin between the interest rote ond the decision to dertoke investment2 Evploin

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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1 a) b) c)

1. Zaggy Zargawhoop has an idea for a new business. In order to develop his idea, he needs to
invest $600 today. Zaggy's idea will pay off $690 next year for certain.
Suppose that Zaggy has no savings to fund his idea and has to borrow money from the bank.
a. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy borrow
money from the bank to fund his idea?
b. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy borrow
money from the bank to fund his idea?
Now suppose that Zaggy has $600 in his bank account.
c. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy withdraw
his savings to fund his idea?
d. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy withdraw
his savings to fund his idea?
e. Does the method of financing (whether through savings or debt) appear to affect the
relationship between the interest rate and the decision to undertake investment? Explain.
Transcribed Image Text:1. Zaggy Zargawhoop has an idea for a new business. In order to develop his idea, he needs to invest $600 today. Zaggy's idea will pay off $690 next year for certain. Suppose that Zaggy has no savings to fund his idea and has to borrow money from the bank. a. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy borrow money from the bank to fund his idea? b. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy borrow money from the bank to fund his idea? Now suppose that Zaggy has $600 in his bank account. c. Suppose that the interest rate for borrowing and for lending is 12%. Should Zaggy withdraw his savings to fund his idea? d. Suppose that the interest rate for borrowing and for lending is 22%. Should Zaggy withdraw his savings to fund his idea? e. Does the method of financing (whether through savings or debt) appear to affect the relationship between the interest rate and the decision to undertake investment? Explain.
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