Is the statement below true, false or uncertain? Explain your answer. Note: Include a diagram as part of your answer. "Asha is a borrower when the interest rate is 10% and a saver when the interest rate is 20%. A decrease in the interest rate from 20% to 10% may make Asha worse off. Assume the price of the good in each period is $1."

Is the statement below true, false or uncertain? Explain your answer. Note: Include a diagram as part of your answer. "Asha is a borrower when the interest rate is 10% and a saver when the interest rate is 20%. A decrease in the interest rate from 20% to 10% may make Asha worse off. Assume the price of the good in each period is $1."

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A retired woman has $50,000 to invest but needs to make $6,000 a year from the interest to meet certain living expenses. One bond investment pays 15% simple annual interest. The rest of it she wants to put in a CD that pays 7% simple interest. a) Let x be the amount the woman invests in the 15% bond. Write an expression, in terms of x, that tells how much the woman invests in the CD. b) Set up an equation that can be used to determine how much the woman should invest in each option to earn $6,000 per year in interest. c) Solve the equation from part b) to determine how much should be invested in each option.
Calculate the equilibrium interest rate.
Suppose 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…
Jack’s Lock and Key are considering remodeling. It estimates that the remodeling will cost $6,000 and that as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year, and have no effect after then. If the interest rate is 5%, should Jack’s remodel? Defend your answer by showing your work.
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Suppose 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.
You'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.
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Suppose that you are considering whether to enroll in a summer computer-training program that costs $3,000. If you take the program, you will have to give up $1,500 of earnings from your summer job. You figure that the program will increase your earnings by $750 per year for each of the next 10 years. Beyond that, it is not expected to affect your earnings. Suppose the interest rate is 5%. Use the preceding information to calculate the present value of the wage increase resulting from the training program. Then decide whether the investment is worthwhile, given the present value of the cost of the training program. At this interest rate, the present value of the increase in wages is about the training. Thus, from a strictly monetary viewpoint, you which is participate in the training program. than the present value of the total cost of