242q3s02 - have gotten together and secretly (because doing...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ECONOMICS 242 QUIZ 3 SPRING 2002 PLEDGE:____________________________ NAME:______________________________ (3 points each) 1. Suppose that a donor promises to give the college a perpetuity of $10,000 a year till the end of time. The present value of that gift, if the interest rate is 6% is: a. $200,000.00 b. $166,666.67 c. $60,000.00 d. $1,666.67 2. If another donor promises to give the college $1000 today, and the interest rate is 5%, how much money will the college have in 10 years if it invests that original donation and reinvests all the interest? a. $10,000.00 b. $1628.89 c. $1,500 d. $1432.98 3. President Cook is deciding whether to go after a big donor who is likely to give $1,000,000 to the college next year. The probability of the gift is 80%, and the interest rate is 25%. The present value of the gift is therefore: a. $1,000,000 b. $833,333 c. $800,000 d. $640,000
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4. (11 points) Suppose that Burger King and McDonald’s are playing the following game. They can either charge $1 or $1.50 for a cheeseburger. They
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: have gotten together and secretly (because doing this is illegal) set the price of cheeseburgers at $1.50. Their payoffs are as follows. If each charges $1.50, they both make $2 million in profits. If each charges $1.00, they each make $1 million in profits. If one charges $1.50 and the other charges $1.00, the one who charges $1 makes $2.9 million in profits, while the other makes no profits. Burger King $1.00 $1.50 McDonalds $1.00 $1.50 a. Fill in the above table. b. Suppose the companies are both playing a grim strategy and the game lasts two periods. McDonalds is considering cheating. If the interest rate is 20%, should McDonalds cheat in the first period, the second period, or not at all? Explain. c. Suppose the companies are both playing the grim strategy, and the game lasts forever. McDonalds is considering cheating. How high does the interest have to be for cheating to be a sound strategy for McDonalds?...
View Full Document

This test prep was uploaded on 04/22/2008 for the course ECON 242 taught by Professor Nonnenmacher during the Spring '06 term at Allegheny.

Page1 / 2

242q3s02 - have gotten together and secretly (because doing...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online