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business
economics 14th global

Questions and Answers of Economics 14th Global

True or False: Based on the principles of engineering economic analysis, you should bet on the horse with the lowest odds to win, because risk and returns tend to be positively correlated.
True or False: Every economic decision should be based on the time value of money.
True or False: If you can earn 8% on your investments and you can borrow money at an annual compound rate of 6%, you would prefer to repay the loan with equal monthly payments.
True or False: In purchasing a house, the points and other closing costs you pay are included in the stated interest rate for a 30-year conventional loan.
True or False: The annual percentage rate is the same as the effective annual interest rate.
True or False: When repaying a loan with equal monthly payments, the amount of interest and the amount of principal in a loan payment remain proportionally the same over the loan period.
True or False: If you purchase a $1,000, 8% semiannual bond for $1,000 and sell it after 5 years for $1,000, then your effective annual yield on the bond is 8%.
True of False: If money is worth 5% compounded annually to you, then you should prefer to receive \($2\),750 today than to receive \($3\),500 five years from today.
True or False: If money is worth 7% compounded annually to you, then you should prefer to receive \($1\),000,000 thirty years from now than to receive \($200\),000 today.
True of False: Ifmoneyisworth6%compoundedannually to you, then you should prefer toreceive\($1750\)peryearfor5yearsthantoreceive\($1000\)peryear for10years,assuming the first receipt occurs one year
True or False: If money is worth 7% compounded annually to you, then you would prefer to receive \($2\),200 each year for 5 years than to receive \($4\),000 the first year, \($3\),000 the second
True of False: If money has a time value of 8% compounded annually, you should prefer to receive a uniform series of ten \($1\),000 cash flows over the interval [1,10] to receiving a uniform series
When repaying a loan using Plan 1 (interest each period; principal only at end), what can be said about the payments?a. The interest payments will decrease by a constant amount each period.b. The
When repaying a loan using Plan 3 (equal end-of-period payments), which of the following is true?a. Interest payments will increase and principal payments will decrease from period to period.b.
When repaying a loan using the four plans (assuming no taxes and no inflation), what can be said about the borrower’s preferred payment plan?a. Since Plan 3 is most commonly used, it is the
A house is to be purchased for \($180\),000 with a 10 percent down payment, thereby financing \($162\),000 with a home loan and mortgage. There are no points or other closing charges associated with
A house is to be purchased for \($270\),000 with a 5 percent down payment, thereby financing \($256\),500 with a home loan and mortgage. There are 2 points assessed, and there are additional closing
You want to purchase a house and have done a thorough job identifying many different local and Web-based financing plans. Various plans have different up-front charges, which you intend to roll into
Consider a 7/1 ARM loan, starting at 5 percent with potential up-or-down yearly increments of 1 percent in the rate. Why is such an ARM loan potentially economically dangerous?a. Actually, many
One of your financing options is a balloon loan on a \($200\),000 thirty-year mortgage with monthly payments and an interest rate of 7.5 percent per year.Which of the following statements is
You borrow \($5\),000 at 10 percent per year and will pay off the loan in three equal annual payments starting 1 year after the loan is made. The end-of-year payments are \($2\),010.57. Which of the
You borrow \($10\),000 at 15 percent per year and will pay off the loan in three equal annual payments with the first occurring at the end of the fourth year after the loan is made. The three equal
You are looking ahead to retirement and desire to invest 7 percent of your salary in investments earning 6 percent. You expect your salary to increase at 5 percent per year throughout your working
What series of equal annual payments is equivalent to a series of decreasing payments as follows:\($5\),000, \($4\),000, \($3\),000, \($2\),000, \($1\),000 if the interest rate is 10 percent per
You purchase a \($10\),000 bond with a bond rate of 6 percent per year payable semiannually for 2 years.You pay \($9\),600 for the bond. Which statement is correct?a. Semiannual cash flows will be -
Consider a cash flow and interest profile as shown:The worth of these cash flows at the end of year 3 isa. $5,000.b. $5,504.72.c. $5,994.56.d. $5,440. Year 0 Year 1 Year 2 Year 3 Cash Flow at $1,000
You have decided to purchase a small tract of land for building a new home on the outskirts of town. You have some money available but need a loan of \($18\),000 to make the purchase. The land will
You need a good preowned car following college. For the car you want, you need a loan of \($12\),000. With your limited credit record and the best rate available to you being 10 percent, you have
J&J Cattle has purchased a quarter section of land for \($160\),000. They make a down payment of \($20\),000, and the remainder of the purchase price (\($140\),000) is financed at 12 percent
Upon graduation, Steven purchases a new home theater system for his apartment. To finance the system, he‘‘borrows’’ \($5\),000 from a new credit card at 21 percent per year compounded
Refer to Problem 1. For each of the five payment schedules, determine the present worth of the loan payments made by the borrower. Use an Excel® spreadsheet and program it such that you can enter
Refer to Problem2. For each of the five payment schedules, determine the present worth of the loan payments made by the borrower. Use an Excel® spreadsheet and program it such that you can enter
Refer to Problem 3. For each of the five payment schedules, determine the present worth of the loan payments made by the borrower. Use an Excel® spreadsheet and program it such that you can enter
Refer to Problem 4. For each of the payment schedules, determine the present worth of the loan payments made by the borrower. Use an Excel® spreadsheet and program it such that you can enter
Your money is tied up and you need to borrow \($10\),000. The following two alternatives are available at different banks: (1) Pay \($3\),311.61 at the end of each year for 5 years, starting at the
Your money is tied up and you need to borrow \($10\),000. The following two alternatives are being offered by the lender:(1) pay \($3\),288.91 at the end of each year for 5 years, starting at the end
Go to the U.S. Department of Housing and Urban Development (HUD) Web site at www.hud.gov and identify the three topics under ‘‘Homes’’ that are of interest to you. For each of the three
Do a Google search on something like home loans; mortgage lenders; home financing; fixed loans; ARM and spend 10 minutes seeing what you can learn about available home loans. Give the URL of any Web
Do a Google search on something like financial calculators; mortgage calculators; loan calculators; or similar.Locate one to your liking and put into it a loan of \($225\),000 at 7 percent over 360
A recent engineering graduate is relocating after 3 years on the job. History shows that subsequent assignments with the company last for 4 to 6 years before moving on to a new location for
Amidcareer professional couple is interested in purchasing a new homecosting \($750\),000.They can afford a 20 percent, or\($150\),000, down payment, leaving \($600\),000 to be borrowed, a loan in
A recent civil engineering graduate wishes to buy a new home costing \($200\),000, make a 5 percent down payment, and finance the remaining \($190\),000. The rate quoted for a conventional 30-year
A professional couple wishes to purchase a new home costing \($750\),000, make a 20 percent down payment, and finance the remaining \($600\),000. The rate quoted for a conventional 30-year loan is
A contact engineer in petrochemicals wishes to buy a new home costing \($200\),000, make a 5 percent down payment, and finance the remaining \($190\),000. The rate quoted for a conventional 30-year
A two-executive professional couple wishes to purchase a new home costing \($750\),000, make a 20 percent down payment, and finance the remaining \($600\),000. The rate quoted for a conventional
An environmental engineer wishes to buy a new home costing \($200\),000, make a 5 percent down payment, and finance the remaining \($190\),000. The rate quoted for a conventional 15-year loan is 5.5
A couple nearing retirement wishes to purchase a new home costing \($750\),000, make a 20 percent down payment, and finance the remaining \($600\),000. The conventional 15-year loan rate is 5.6250
You have settled on a house for \($180\),000 and need a loan for \($171\),000. You have been offered a \($171\),000 loan for 6.25 percent, plus 2.375 points (applied to only the \($171\),000), plus
Anewengineering department head is joining the university and during a visit hasmade an offer on a homefor \($350\),000 with a 20 percent down payment. The offer has been accepted pending success in
The Chopras wish to purchase a new house, even though they plan to be in it for only 6 years. The house costs \($550\),000, and they will make a \($55\),000 down payment, leaving \($495\),000 to be
You are planning to pursue a MS degree in engineering. The program will require 2 years, at which time you will likely go to work in the same city. You have decided to purchase a house and live in it
In order to buy a car, you borrow $25,000 from a friend at 12 percent/year compounded monthly for 4 years. You plan to repay the loan with 48 equal monthly payments.a. How much are the monthly
CTL (Concrete Testing Lab) borrowed $80,000 for new equipment at 8 percent per year, compounded quarterly. It is to be paid back over 3 years in equal quarterly payments. For each part below, use
Med Diagnostics Inc. borrowed \($200\),000 from a lender for a new blood analyzer module to improve accuracy and consistency of its tests. The rate was 6 percent, 2 percent above the prime rate. The
Upon graduation, Jeffrey Feldhusen borrows $15,000 to finance a late model used car. The loan is made by a family member who wishes to have equal annual payments at 9 percent over 4 years.a. How much
In order to pay for school, you borrow $22,000 at 12 percent/year compounded monthly. You do not pay back any of it until the end of the first month following year 4, and you intend to have it paid
Aerotron Electronics has just bought a used delivery truck for \($15\),000. The small business paid \($1\),000 down and financed the rest, with the agreement to pay nothing for the entire first year
BioElectroMechanical Systems (BEMS) is a start-up company with high potential and little available cash. They obtain $500,000 for necessary technology from a venture capitalist who charges them 24
Catherine Valentine wants to start saving for retirement as soon as she gets a job upon graduation with an MS degree at age 24. She plans to deposit $1,500 at the end of her first year of work, at
Shortly after completing his MS degree in engineering, Jerry Dechert wanted to initiate a retirement plan. He decided to use a 15 percent mix of blue chip individual stocks, 50 percent mutual funds,
Recall Problem 34. Shortly before Jerry got under way with his job and investment plan, he met Jennifer. All of a sudden, he decided to put the retirement plan on hold, reasoning that 40 years is a
Let’s build a spreadsheet that will help you evaluate some very basic retirement issues in short order. Put each of the following in its own cell—kind of a ‘‘control panel’’ approach: (1)
Go to the Fidelity, CNN, Edward Jones, SmartMoney, AARP, and so on, retirement worksheets. Put in financial information that applies to you, your expectations, and your desires. In a category that
Go to the Fidelity, CNN, Edward Jones, SmartMoney, AARP, and so on, retirement worksheets. Put in financial information that applies to someone between 40 and 60 such as a parent, aunt/uncle, and so
Josh is graduating at the end of the academic year with a BS degree in engineering. He already has an offer with a good company for $58,000. He has learned that those who continue along a technical
An automobile is priced at \($7\),000. A buyer may purchase the car for \($6\),500 now, or alternatively, the buyer can make a down payment of \($1\),000 now and pay the remaining \($6\),000 in eight
Consider the following two cash flow series of payments: Series A is a geometric series increasing at a rate of 8 percent per year. The initial cash payment at the end of year 1 is $1,000. The
Kinnunen Company wishes to give its customers three options on payments for office equipment when the initial purchase price is over a certain amount. For example, the following three payment plans
Consider the following three cash flow series:Determine the values of X and Y so that all three cash flows are equivalent at an interest rate of 15 percent per year compounded yearly. End of Year
Consider the following three cash flow series:Determine the values of X and Y so that you are indifferent between all three cash flows if your TVOM is 11% per year compounded yearly. End of Year Cash
Zetterberg Builders is given two options for making payments on a brush hog. Find the value of X such that they would be indifferent between the two cash flow profiles if their TVOM is 12 percent per
Dr. Sivaraman is considering purchasing a \($10\),000 bond with a bond coupon rate of 7 percent per year with semiannual interest payments (3.5 percent payable every 6 months). The bond has a life of
Lucy Lampkin wants to purchase a bond with a face value of $7,000 and a bond rate of 6 percent per year, payable at 3 percent semiannually. The bond has a remaining life of 5 years. If Lucy wants to
A 15-year bond having a face value of \($5\),000 and a coupon rate of 6 percent per 6 months payable semiannually was purchased for \($7\),000 eight years ago, and the sixteenth interest payment was
You have just purchased a municipal bond with a \($10\),000 par value for \($9\),500. You purchased it immediately after the previous owner received a semiannual interest payment. The bond rate is
You wish to purchase a \($1\),000 bond from a friend who needs the money. There are 7 years remaining until the bond matures, and interest payments are quarterly. You decide to offer \($750.08\) for
Leann just sold a $10,000 par value bond for $9,800. The bond interest rate was 6 percent per year payable quarterly.Leann owned the bond for 3 years. The first interest payment she received was 3
A bond is purchased for \($8\),628.12. It is kept for 5 years, and interest is received at the end of each year. Immediately following the owner’s receipt of the fifth interest payment, the owner
A bond is purchased for \($9\),855.57. It is kept for 5 years, and interest is received at the end of each year. Immediately following the owner’s receipt of the fifth interest payment, the owner
A $20,000 municipal bond is offered for sale at $18,000. The bond interest rate is 6 percent per year payable semiannually. The bond will mature and be redeemed at face value 5 years from now. If you
Shannon purchases a bond for \($1\),142.38. The bond matures in 3 years, and she will redeem it at its face value of \($1\),200. Interest premiums are paid annually. If Shannon will earn a yield of
Sydney just opened a savings account with an initial deposit of $2,500. The interest rate starts at 2 percent compounded annually and doubles every 4 years.a. How much will Sydney have in the account
Charlie has $10,000 to invest for a period of 5 years. The following three alternatives are available to him: Account 1 pays 4 percent for year 1, 6 percent for year 2, 8 percent for year 3, 10
You have $2,000 that you want to invest at the beginning of each of 5 years. The following alternatives are available to you:• An investment that pays 7 percent for year 1, 6 percent for year 2, 5
Jimmy deposits $4,000 now, $2,500 three years from now, and $5,000 six years from now. Interest is 5 percent for the first 3 years and 7 percent for the last 3 years.a. How much money will be in the
Consider the following cash flows and interest rates:a. Determine the future worth of this series of cash flows.b. Determine the present worth of this series of cash flows.c. Determine a 3-year
What words comprise the acronym ‘‘DCF’’? Describe/define what it means in 10 words or less.
State the four DCF rules.
You are offered \($200\) now plus \($100\) a year from now for your used computer. Since the sum of those two amounts is \($300\), the buyer suggests simply waiting and giving you \($300\) a year
You are offered $500 now plus $500 one year from now. You can earn 6 percent per year on your money.a. It is suggested that a single fair amount be paid now. What do you consider fair?b. It is
Pooi Phan needs \($2\),000 to pay off her bills. She borrows this amount from a bank with plans to pay it back over the next 4 years at $X per year. Draw a cash flow diagram from the bank’s
Today you borrow \($10\),000 to pay for your expected college costs over the next 4 years, including a master’s degree. Two years from now, you determine that you need an additional \($4\),000, so
Kaelyn borrows \($30\),000 from her grandfather today to cover her college expenses. She agrees to repay the loan, with the first payment due 5 years from today in the amount of \($2\),000. No
David is borrowing \($150\),000 from Hartford Bank to open a road and off-road bicycle shop. Since David expects it to take a few years before the shop earns a sizeable profit, he has arranged for no
Mercruiser purchases a used, recently upgraded computer numerical control (CNC) machine for turning operations. It costs \($50\),000, and since the machine will increase productivity, the company
You rent an apartment for \($550\) per month, payable at the beginning of the month. An initial deposit of \($450\) is required. Utilities are an additional \($150\) per month payable at the end of
Rodeo Jeans are stonewashed under a contract with independent USA Denim Company. USA Denim purchased 2 semiautomatic machines that cost \($19\),000 each at (t = 0). Annual operating and maintenance
A laser-cutting machine is purchased today for \($23\),000. There are no maintenance costs for the next 2 years.Maintenance at the end of year 3 is expected to be \($2\),000, with the subsequent
Draw a cash flow diagram depicting the net cash flows associated with the purchase, operation, and disposition of a synthetic rubber-blending machine. The cash flow components are shown below. Your
You want to withdraw a single sum of $8,000 from an account at the end of 12 years. This withdrawal will deplete the account.a. What single sum of money must you deposit today if the account earns 5

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