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 18, Problem 5RQ
To determine
Present value of a sum of money.
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QUESTION 19
You lend your sister's daughter $2,000 for a year, if at the end of the year she pays you $2,180. The interest rate you are charging her is
O 1.1%.
O 9%.
O 10%.
O 20%.
Theodore D. Kat is applying to his friendly,
neighborhood bank for a mortgage of $200,000. The
bank is quoting 6%. He would like to have a 25-year
amortization period and wants to make payments
monthly. What will Theodore’s payments be?
48
LO3
Calculate the Present Value of the cash flow diagram below using the regular equation, then using
the application of the uniform payment formula. (Obviously, both solutions should yield the same
answer.)
0
$100
1
2
Interest Rate = 5% per year.
$100
3
4
$100
LO
5
Years
Chapter 18 Solutions
Economics (Irwin Economics)
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- A coupon bond will make 20 annual coupon payments of $5,000 each and will pay a face value of $100,000 at the end of the twenty years. Currently this bond is selling for $75,000. What is the yield to maturity of this bond? O 5.0 percent O Lower than 5.0 percent O Higher than 5.0 percent.arrow_forwardHow would we compute the present discounted value of payments of $8,000 received three years in the future and $10,000 received four years in the future? The interest rate is expected to be 5 percent for the next four years. Please choose one: O a. 8,000/((15)3) + 10,000/(1.5)4) O b.8,000/((1.05)3) +10,000/((1.05)4) Oc 8,000/(1.03) + 10,000/(104) O D 8,000/(105) +10,000/((1.05)2)arrow_forward5. Suppose after you graduate from Algoma University, you find a job that pays you $75,000 a year. Further suppose that you take out a home equity loan of $360,000 for 30 years at an annual interest rate of 3.5 percent, with payments to be made monthly. What will your monthly payments be? If the interest rate increases from 3.5 percent to 5.0 percent, how much will your monthly payments increase? Instead of 30 years, you decide to pay your loan in 25 years, what will your monthly payments be if the interest rate remains at 3.5 percent or increases to 5.0 percent. Develop a chart comparing these monthly payments. Show your work.arrow_forward
- What is the present value of a payment of $5,000 at the end of one year and a second payment of $7,000 at the end of two years if the interest rate is 5 percent? O A. $11,201.84 O B. $11,111.11 O C. $10,985.14 O D. $12,250.32arrow_forwardHow would we compute the present discounted value of payments of $8,000 received three years in the future and $10,000 received four years in the future? The interest rate is expected to be 5 percent for the next four years. Please choose one: O a. 8,000/((1.5)3) + 10,000/((1.5)4) O b. 8,000/((1.05)3) + 10,000/((1.05)4) O c 8,000/(1.03) + 10,000/(104) OD 8,000/(1.05) + 10,000/((1.05)2)arrow_forwardSuppose that you barrow 10,000 AED at 1% compounded interest, the the total amount to pay in five years is O 10,000 AED 10,510 AED 500 AED O 10,400 AEDarrow_forward
- Suppose that the interest rate at which Joanne can borrow and lend is 10 percent per year, but she can earn $22,000 with a high school degree. Her tuition and books at college cost $6,000 and her living expenses are $15,000 per year. Savings are deposited at the end of the year they are earned and receive (compound) interest at the end of each subsequent year. Similarly, the loans are taken out at the end of the year in which they are needed, and interest does not accrue until the end of the subsequent year. Now that the interest rate has risen, should Joanne go to college or go to work?arrow_forwardWhat is the value of n with interest 10% that makes the present value equal to O? 100 100 3. lo00 Given formula: (1+i)"-1 P=A- iX(1+i)"arrow_forward|1| 2. I 3 | ... 4 | 11 5 1 1. 61 3 Once you have defined the words above, draw the following comparisons: 1. How is a fixed interest rate different from a variable interest rate? When can either be an advantage? 2. What is the difference between simple interest and compound interest? Which is more expensive? 3. What would $1000 become in a saving account at 3% per year for 3 years when the interest is not compounded (simple interest)? What would the same amount become after 3 years with the same rate but compounded annually?arrow_forward
- 9. In how may months will a loan of P2.M be paid if the monthly payment is P94,146.94? Select the correct response: O 24 22 O 16 O 20arrow_forwardPlease use the graph to answer the questions. Given the market conditions, what will the prevailing interest rate be? O 6% 18% O 2% 10% Given the market conditions, how much money is borrowed in the loanable funds market? O $10 billion. $50 billion O$90 billion O $70 billion $30 billion. Interest rate (%) 18- 16- 14- 12. 10. 8- 6- + et 0 Demand Supply 60 70 80 90 10 20 30 40 50 Quantity of loanable funds (in billions of dollars)arrow_forwardA man borrowed P12,000 at a discounted rate of 12.5% pa and agreed to pay the loan in one year. What was the effective interest rate? Select the correct response: O 15.67% pa O 14.29% pa O 12.5% pa O 16.67% pa O 14.50% paarrow_forward
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