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Time value of money 1) City of suburbia is faced with two choices: purchasing a road construction equipment for $66,000, or leasing the equipment for

Time value of money

1) City of suburbia is faced with two choices: purchasing a road construction equipment for $66,000, or leasing the equipment for $15,000 per year for a period of 5 years. The city needs equipment only for 5 years. Assume the city faces the current rate of 1% on the lease option. Which option should the city choose? How does your answer changes with varying interest rates? (Try the following what if scenarios: the rate of 5% and the rate -0.1%.)

2) A time-sharing condominium firm offers prizes to people who visit its project and listen to a marketing presentation. One prize is a $1,000 savings account. Unfortunately, the account would not be available for forty-five years and requires that the winner pays an initial service fee of $55. If one puts $55 in an investment account, what annual compound rate of return would cause that sum to reach $1,000 in forty-five years? 2 3) Your friend informed you that a comic book your grandfather purchased for 10 cents in 1948 is worth $85 today. How much in the 2016 dollars did your grandfather paid for the comic book? (Use the Price Indexes for Personal Consumption Expenditures from BEA (Table 2.4.4; line 17): https://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=69 ) What has been the average annual compound rate of return on that valuable asset? Assuming the current Treasury Bills 1-year rates of 0.58%, how much will the comic be valued in 1 year from now? Three years? If the rate changes to -0.01%?

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