{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

quiz1 - A 3 10(c $2,700(d $3,000 3 Suppose that you can...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 134a Summer 2007 Quiz 1 Name: 1. Consider a payment of $1 million in ten years. If the interest rate declines from 10% to 8%, what happens to the present value of that payment? (a) Increases - By the present value equation, as r increases, the denomi- nator increases and PV decreases. (b) Decreases (c) No change, since the payment has not changed (d) Not enough information 2. Given a discount rate of 10%, calculate the (approximate) present value of an annuity which pays $1,000 per year for 3 years, with the first payment due in exactly 1 year. (a) $2,250 (b) $2,500 - Use the annuity formula to solve
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: A 3 . 10 (c) $2,700 (d) $3,000 3. Suppose that you can borrow and lend at 5%. You plan to spend $35,000 this year, and your employer is offering to restructure your salary to best fit your needs. Which of the following options should you take? (a) $35,000 this year and $85,000 next year (b) $50,000 this year and $70,000 next year (c) $100,000 this year and $20,000 next year - Highest PV (d) Doesn’t matter, since you can borrow and lend at the same rate Helpful formulae: • Net Present Value = C + ∑ T t =1 C t (1+ r ) t • Annuity: PV = C r ‡ 1-1 (1+ r ) t ·...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern