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Three students have each saved $1000. Each has an investment opportunity in which he or she can invest up to $2000. Here are the rates
Three students have each saved $1000. Each has an investment opportunity in which he or she can invest up to $2000. Here are the rates of returns on the students'investment projects: Harry = 5 percent, Ron=8 percent, Hermione = 20 percent
- a)If borrowing and lending are prohibited, so each student only uses only personal saving to finance his or her own project, how much will each student have a year later when the project pays its return?
- b)Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at interest rate r. What would determine whether a student would choose to be a borrower or lender in this market?
- c)Among these three students, what would be the quantity of loanable funds supplied and quantity of loanable funds demanded at an interest rate of 7 percent? at 10 percent? Assume unlimited funds are available to be borrowed at these rates.
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