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Unformatted text preview: of almonds and his
neighbour produces 800 tonnes of walnuts. If the market price of almonds is $100
per tonne and the market price of walnuts is $1.10 per tonne:
a. Should he make the exchange?
b. Does it matter whether he prefers almonds or walnuts? Why or why not?
The Time Value of Money and Interest Rates
6. You have $100 and a bank is offering 5% interest on deposits. If you deposit the
money in the bank, how much will you have in one year?
7. You expect to have $1000 in one year. A bank is offering loans at 6% interest per
year. How much can you borrow today?
8. A friend asks to borrow $55 from you and in return will pay you $58 in one year. If
your bank is offering a 6% interest rate on deposits and loans:
a. How much would you have in one year if you deposited the $55 instead?
b. How much money could you borrow today if you pay the bank $58 in one year?
c. Should you lend the money to your friend or deposit it in the bank?
9. Suppose the interest rate is 4%.
a. Having $200 today is equivalent to having what...
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- Spring '07