Answer, these questions as indicated in the attachment.

fect. Please see the preface for more information. Basic Problems 1. You invest $3,000 for three years at 12 percent. Fu What is the value of your investment after one year? Multiply $3,000 x 1.12. (L What is the value of your investment after two years? Multiply your answer well to part a by 1.12. What is the value of your investment after three years? Multiply your answer to part b by 1.12. This gives your final answer. d. Combine these steps using the formula FV = PV x (1 + 0)" to find the future Jo eu value of $3,000 in three years at 12 percent interest. 2. What is the present value of a. $7,900 in 10 years at 11 percent? b. $16,600 in 5 years at 9 percent? c. $26,000 in 14 years at 6 percent? 3. a. What is the present value of $140,000 to be received after 30 years with a 14 percent discount rate? b. Would the present value of the funds in part a be enough to buy a $2,900 concert ticket?Part 4 The Capital Budgeting Process well value 4. You will receive $6.800 three years from now. The discount rate is 10 perce What is the value of your investment two years from now? Muluply $6,800 x (1/1.10) or divide by 1.10 (one year's discount rate at 10 percent h. What is the value of your investment one year from now? Multiply your answer to part a by (1/1.10). What is the value of your investment today? Multiply your answer to pan , by (1/1. 10). Use the formula PV = FV * 7 , to find the present value of $6,600 received three years from now at 10 percent interest. 5. If you invest $9.000 today, how much will you have a. In 2 years at 9 percent? b. In 7 years at 12 percent? In 25 years at 14 percent? d. In 25 years at 14 percent (compounded semiannually)? 6. Your aunt offers you a choice of $20,100 in 20 years or $870 today. If money is discounted at 17 percent, which should you choose? 7. Your uncle offers you a choice of $105,000 in 10 years or $47.000 today. If money is discounted at 9 percent. which should you choose? Do 8. Your father offers you a choice of $105,000 in 12 years or $47,000 today. a. If money is discounted at 8 percent, which should you choose? b. If money is still discounted at 8 percent, but your choice is between $105,000 in 9 years or $47,000 today, which should you choose? 9. You are going to receive $205,000 in 18 years. What is the difference in presem value between using a discount rate of 12 percent versus 9 percent? 10. How much would you have to invest today to receive a. $15,000 in 8 years at 10 percent? b. $20,000 in 12 years at 13 percent? c. $6,000 each year for 10 years at 9 percent? d. $50,000 each year for 50 years at 7 percent? 11. If you invest $8,500 per period for the following number of periods, how much would you have? a. 12 years at 10 percent. b. 50 years at 9 percent. 12. You invest a single amount of $10,000 for 5 years at 10 percent. At the end of 5 years you take the proceeds and invest them for 12 years at 15 percent. How much will you have after 17 years? 13. Mrs. Crawford will receive $7,600 a year for the next 19 years from her trust. If a 14 percent interest rate is applied, what is the current value of the future payments? 14. Phil Goode will receive $175,000 in 50 years. His friends are very jealous of him. If the funds are discounted back at a rate of 14 percent, what is the present value of his future "pot of gold"? 15. Sherwin Williams will receive $18.500 a year for the next 25 years as a result of a picture he has painted. If a discount rate of 12 percent is applied, should he be willing to sell out his future rights now for $165,000? 16. Carrie Tune will receive $19,500 for the next 20 years as a payment for a new song she has written. If a 10 percent rate is applied, should she be willing to sell out her future rights now for $160,000?Question 1 (42 p) Consider a closed economy where goods market and finalcial markets can be described by the following equations for penod c Co - 100 + 0.5Y - 200 + 0.25Y. -200r G = 100; T = 200 Suppose inflation excpectations in this economy is based on past period's inflation rate, i.c. Let Ya- F(N.) - Na; the labor force is given as constant at LF = 1000. a. (4p) Write down the IS equation for this economy. b. (4p) Assume a horizontal LM function where the Central Bank announces the interest rate to be b = 1= 0.30 (in period t, the Central Bank sets the nominal interest rate a 30%%, with " = 0.1 (10% expected inflation rate for period (). What will be the short run equilibrium level of output. Y's for this economy? c. (4p) Suppose the natural unemployment rate for this economy is u. = $%. What would be the potential output level, Yo? How does Y's compare to the short-term equilibrium level of output, Y, that you have found? d. (3p) Based on your answer to part c). what can you suggest on the relationship between n and In? Explain e) (4p) Suppose that the Phillips Curve (PC) relationship for this economy is given by: Express the PC relationship above as a function of output gap, Yo - Y's. f) (4p) What is the current inflation rate, # for this economy? g) (8p) Draw the IS-LM-PC graph. Show the current short-run equilibrium of this economy on your graph. h ) (8p) How will the dynamics of this economy behave towards the medium run? Explain i) What would happen if the CB does not intervene, and (i) if the CB intervenes. Show your answer on the graph that you have drawn in g). Make sure you also show the direction of movement(s) on your graph. j) (3p) Will the medium-run inflation rate in this economy be higher than lower than equal to current inflation rate n- under cases (i) and (ii) that you have described in part h)? Explain.Exercise 1 Horizontal differentiation There are only two shops selling sweet-and-sour soup in this area. For sim- plicity, we set their marginal cost of production to zero. As it happens, one shop (named "Won-Ton" and indexed by 1) is located at point 0, while the other shop (named "Too-Chow" and indexed by 2) is located at point 1. Everyday, each inhabitant of the street may consume at most one bowl of sweet-and-sour soup, bought either from Won-Ton or from Too-Chow. The price per bowl of the two shops are respectively denoted by p, and p2. The net utility for a consumer located at r on the interva I[0, 1] is given by r - n(J) - PI if consumer buys at Won-Ton r - 72(1 - x) - p2 if consumer buys at Too-Chow if consumer does not buy. where it is assumed that r is large enough so that every consumer buys one bowl of soup. 1. Before 1993 and the installation of the Mid-Levels escalators, walking up the street was much more painful than walking down. This is translated by the following assumptions: 7(x) = tr and 72(1 - x) = ( + r)(1 -r) with t, 7 > 0. 1.1 Derive the identity of the consumer who is indifferent between the two shops. 1.2 Compute the equilibrium prices and profits of the two shops. 1.3 Show that Too-Chow's profits increase if walking up the street be- comes more costly for consumers, that is if 7 increases (e.g., because the temperature has risen). Explain the intuition behind this result. 2 After 1993, the Mid-Levels escalators made going up and down equally painful for consumers. However, consumers had to pay a fixed fee f (in- dependent of distance) to use the escalators. This is translated by the following assumptions: n(x) = tr and 72(1-x) = t(1-x) + f with f >0. 2.1 Derive the identity of the consumer who is indifferent between the two shops