PRICIPLES OF MACROECONOMICS
8th Edition
ISBN: 9781337761598
Author: Mankiw
Publisher: CENGAGE L
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Chapter 14, Problem 3CQQ
To determine
Calculation of the present value of money.
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Which of the following has the highest future value?
A.
$100 saved for 2 years at 10 percent interest
B.
$130 saved for 2 years at 7 percent interest
C.
$120 saved for 2 years at 8 percent interest
D.
$110 saved for 2 years at 9 percent interest
Hector puts $150 into an account when the interest rate is 4 percent. Later he checks his balance and finds he has about $168.73. How long did Hector wait to check his balance?
A. 3 years
B. 3.5 years
C. 4 years
D. 4.5 years
6. Alex invested a certain amount to a business and promised to pay him back with 1.8 times his original investment. They agreed to have it compounded monthly within 9 years. What is the nominal rate of interest r in percent?
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- You open a 5-year CD for 1,000 that pays 2 interest, compounded annually. What is the value of that CD at the end of the five years?arrow_forwardWhen Andrew was 10 years old, his mother invested $50,000 to use for his college education seven years later. After seven years, how much money did Andrew have if the interest rate was 2 percent a year? A. $57,434.28 B. $50,357.00 C. $50,000.00 D. $43,528.01arrow_forward11. The face value of a bond is $10,000, and the annual coupon payment is $850. What is the coupon rate?arrow_forward
- Compounding refers to: Select one: a. the increased value of an investment that arises from the payment of periodic interest. b. the process of earning interest on both the interest and the principal of an investment. c. the paying back of both interest and principal during the life of a fixed-payment loan. d. the calculation of interest rates after the compounding effect of taxes has been allowed for.arrow_forwardAnnuity Suppose that you are thinking of buying a car that yields a rental of $5,000 each year for 3 years and then can be sold for scrap value of $8,000. With an interest rate of 10 percent, how much would we be willing to pay?arrow_forwardWhich of the following should give you better returns? a. One and a half years rate of interest of 8 percent b. Semi-annual 4 percent rate of interest for 2.5 years c. Quarterly rate of interest of 5% for 2 yearsarrow_forward
- 6. You may borrow or lend at a 5% interest rate, which you expect to remain stable forever. Make a choice and explain your answer in each scenario below. a. You may receive a gift of $500 today or a gift of $540 next year. b. You may receive gift of $100 today or a four-year loan of $500 without interest. c. You may receive a $350 rebate on an $8000 car or one year of no-interest financing on the full price of the car. d. You have just won $1 million in the lottery. You may receive $500,000 now or the full million, paid out in 20 annual payments of $50,000. e. Alternatively, you may take $500,000 now or receive $25,000 per year for eternity (a contract that your heirs will inherit).arrow_forwardYou have two investments to choose from. Investment A pays an interest rate of 5% for 2 years and Investment B pays an interest rate of 2% for 5 years. Given that you have $100 to invest and can only choose from investment A or B, Which one should you choose?arrow_forwardAli invests a certain amount of money today. The process of determining how much money that investment will produce in the future is called Select one: a. present value b. discounting 10 c. Compounding d. annuitizing the cash flowarrow_forward
- You are thinking of investing $3600 this year. You have received advice from family members. • Aunt Anne recommends investing in the stock market with a 9.45% average rate of return. • Uncle Rick recommends investing in a 5.60% certificate of deposit (CD). • Grandpa recommends investing in a 0.53% savings account. How much money will you have at the end of 10 years if you pick Aunt Anne's advice? money after 10 years: S How much money will you have at the end of 20 years if you pick Uncle Rick's advice? money after 20 years: $ How much money will you have at the end of 40 years if you pick Grandpa's advice? money after 40 years: $arrow_forwardSuppose that you purchase a 2 year coupon bond at the time it is issued for $1100. The face value of the bond is $1000, with annual coupon payments of $80. a. What is the bond’s “coupon rate”? b. What is the bond’s “current yield”? c. What is the bond’s (nominal) “yield to maturity”? d. If you hold the bond for 1 year and sell it for $1035 (after collecting the first coupon payment), what is your “holding period rate of return”? Please answer all part otherwise Dounvotearrow_forwardSara wants to have $600,000 in her savings account when she retires. How much must she put in the account now, if the account pays a fixed interest rate of 8%, to ensure that she has $600,000 in 20 years? Select one: a. $231,712 b. $139,541 c. $128,729 d. $180,221arrow_forward
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