Midterm_Fall_2006_Answers - York University AS Economics...

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York University AS Economics 4400 Midterm Examination October 31, 2006 Instructions. Write your name and student number at the top of this page. Answer all questions below. Be clear what formulas you use to arrive at a solution, the actual numerical answers are less important. If you think a question is ambiguous or not enough information is provided to answer it, explain why. There are 8 questions, worth in total 40 points. You have 75 minutes. Problem 1 . (10 pts) Ms. Y lives for two years, 0 and 1. He can choose between the following two income streams: Job A : Pays \$100 in year zero, \$110 in year one. Job B : Pays \$0 in year zero, \$215 in year one. Job C : Pays \$150 in year zero, \$50 in year one. Job D : Pays \$200 in year zero, \$0 in year one. at this rate, so she evaluates jobs based on present values of their income streams. In questions a , b , c , d , just name the optimal income stream(s). No explanation needed. (a) Which income stream should Y choose if r = 0% and she only wants to consume in period zero? (b) Which income stream should Y choose if r = 0% and she only wants to consume in period one? (c) Which income stream should Y choose if r = 10%? Hint: she may be indi/erent between two of them. (d)

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This note was uploaded on 02/05/2012 for the course ECON 4140 taught by Professor A during the Spring '11 term at York University.

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Midterm_Fall_2006_Answers - York University AS Economics...

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