1.A company has an investment project that would cost $10 million today and yield a payoff of $15 million in 4 years.

a)Should the firm undertake the project if the interest rate is 11 percent? 10 percent? 9 percent? 8 percent?

b)Can you figure out the exact cutoff for the interest rate between profitability and nonprofit ability?

2.Some people have proposed an increase in retirement ages for South Koreans. Consider the effects of this proposed new policy (please explain your answer in details using diagrams!!)

a.Show how the change would affect supply and demand in the market for loanable funds.

b.How would this change affect the equilibrium interest rate and investment?

c.In the long run, how would this affect real GDP in Korea Republic?