IE343_HW12_Solutions

IE343_HW12_Solutions - Homework#12Solutions...

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Homework #12 Solutions PURDUE UNIVERSITY Homework Assignment #12 IE 343: Engin ee ring E c onomi c s A ss ign e d: 3 D ec 2010 Fall 2010 Du e : 10 D ec 2010 In s tru c tor: A . Capponi Probl e m 1 (10 poin ts ) T e xtbook probl e m 8-33 (a) Two years from now, we will have that ̈́ͳ כ ሺͳǤͲʹ͸ሻ ൌ ͸ǤͶ ±²³´µ ¶· ¸ . This means that ̈́ͳ ൌ ଺Ǥସ௑ ሺଵǤ଴ଶ଺ሻ ൌ ͸ǤͲͺ ±²³´µ ¶· ¸ . Thus, in order to buy one dollar two years from now, the number of units of currency X to pay is 6.08, as opposed to 6.4 units needed today. (b) If the currency X is devaluing at a rate of 26% per year, then three years from now we will have that ̈́ͳ ൌ ͸ǤͶܺ כ ሺͳǤͲʹ͸ሻ ൌ ͸Ǥͻͳ ±²³´µ ¶· ¸ . Therefore, 6.91 units of X will be needed to buy one dollar three years from now, as opposed to 6.4 units needed today. e m 2 T e e m 8-35 ݅ ௎ௌ ൌ ʹ͸Ψ ¹º» ¼º½» a) Devaluation of currency A relative to dollar = ݂ ൌ ͺΨ ݅ ൌ ͲǤʹ͸ ൅ ͲǤͲͺ ൅ ሺͲǤͲͺሻሺͲǤʹ͸ሻ ൌ ͲǤ͵͸Ͳͺ ¶» ͵͸ǤͲͺΨ This is the IRR in Currency A b) Devaluation of dollar relative to currency B = ݂ ൌ െ͸Ψ ݅ ൌ ͲǤʹ͸ ൅ ሺെͲǤͲ͸ሻ ൅ ሺെͲǤͲ͸ሻሺͲǤʹ͸ሻ ൌ ͲǤͳͺͶͶ ¶» ͳͺǤͶͶΨ This is the IRR in Currency B
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Homework #12 Solutions Probl e m 3 ( 10 poin ts ) T e xtbook probl e m 9-5 MARR = 10% Year EUAC 1 ܧܷܣܥ ൌ ͳʹǡͲͲͲሺܣȁܲǡ ͳͲΨǡ ͳሻ ൌ ͳʹǡͲͲͲ כ ͳǤͳͲͲ ൌ ͳ͵ǡʹͲͲ 2 ܧܷܣܥ ൌ ͳʹǡͲͲͲሺܣȁܲǡ ͳͲΨǡ ʹሻ ൌ ͳʹǡͲͲͲ כ ͲǤͷ͹͸ʹ ൌ ͸ǡͻͳͶǤͶͲ 3 ܧܷܣܥ ൌ ͳʹǡͲͲͲሺܣȁܲǡ ͳͲΨǡ ͵ሻ ൌ ͳʹǡͲͲͲ כ ͲǤͶͲʹͳ ൌ ͶǡͺʹͷǤʹͲ 4
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IE343_HW12_Solutions - Homework#12Solutions...

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