Ross5eChap04sm

Ross5eChap04sm - access to the market. This would also be...

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Answers to End–of–Chapter Problems B–20 Chapter 4: Financial Markets and Net Present Value: First Principles of Finance 4.2 $38,000 + ($55,000 – $20,000) (1.09) = $76,150 Rich will earn $3,150 interest on the $35,000 he lends out this year, which will increase his potential consumption by $38,150 to $76,150 next year. 4.4 There would be too much borrowing. The borrowers would have to be given limited
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Unformatted text preview: access to the market. This would also be an irresistible arbitrage opportunity that could not last long and a new equilibrium would be set. 4.6 a. $91,500 / $76,250 1 = 0.20 or 20% b. He will invest $10,500 in financial assets and $32,500 in productive assets today. c. NPV = $32,500 + $52,500 / 1.2 = $11,250...
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