# ch11a - year or after two years. If it is redeemed after...

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ch11a Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. The price of an antique is expected to rise by 9% during the next year. The interest rate is 11%. You are think- ing of buying an antique and selling it a year from now. You would be willing to pay a total of 900 dollars for the pleasure of owning the antique for a year. How much would you be willing to pay to buy this antique? (See Problem 5.) a. 8,181.82 dollars b. 18,900 dollars c. 900 dollars d. 45,000 dollars e. 9,000 dollars ____ 2. You buy a painting for \$1,280. Its market value will rise by \$80 per year for the next 30 years. It is worth \$80 a year to you to have it hanging on the wall. The interest rate is 10%. In how many years will you sell it? a. 30 b. Immediately c. 8 d. 4 e. 5 True/False Indicate whether the statement is true or false. ____ 3. If the interest rate is 10%, then an asset that returns \$1 a year forever is worth . ____ 4. The interest rate is 10% and there is no inflation. A bond is available that can be redeemed either after one

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Unformatted text preview: year or after two years. If it is redeemed after one year, the investor gets \$110. If it is redeemed after two years, the investor gets \$117.70. The investor gets no other payments than what she receives when she re-deems the bond. In equilibrium, investors will be willing to pay more than \$100 for this bond. ____ 5. A consumer who can borrow and lend at the same interest rate should prefer an endowment with a higher present value to an endowment with a lower present value, no matter how he plans to allocate consumption over the course of his life. ____ 6. If everybody has the same information, then a well-functioning market for assets would, in equilibrium, leave no opportunities for arbitrage. ch11a Answer Section MULTIPLE CHOICE 1. ANS: D PTS: 1 DIF: 2 2. ANS: D PTS: 1 DIF: 2 TRUE/FALSE 3. ANS: F PTS: 1 DIF: 1 4. ANS: F PTS: 1 DIF: 1 5. ANS: T PTS: 1 DIF: 1 6. ANS: T PTS: 1 DIF: 1...
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## ch11a - year or after two years. If it is redeemed after...

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