Quiz 1.docx - Quiz 1 FINC2011 Ms Newcastle has $60,000...

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FINC2011 Quiz 1 Ms. Newcastle has $60,000 income this year and $40,000 next year. The market interest rate is 10 percent per year. Suppose Ms. Newcastle wishes to consume $62,000 next year. What will be her consumption this year? Consumption this year = 60,000 - (22,000/1.1) = 40,000. Mr. Bird has $100 income this year and zero income next year. The market interest rate is 10 percent per year. Mr. Bird also has an investment opportunity in which he can invest $50 today and receive $80 next year. Suppose Mr. Bird consumes $30 this year and invests in the project. What will be his consumption next year? Consumption next year = (100 - 30 - 50) × 1.1 + 80 = 102. The board of directors is ultimately responsible for all large investment decisions. A True ~ B False The following groups are some of the claimants to a firm's income stream A shareholders and bondholders only. B shareholders, bondholders, and employees only. C shareholders, bondholders, employees, and management only. D shareholders, bondholders, employees, management, and government. ~
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