The money left over after all of the business costs are subtracted is called the _________

Frank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a 2 percent real return per year. I

egoroff_w [7]

Answer:

a. 23%.

b. Frank should charge Sarah 2% more than the inflation rate.

Explanation:

a. Find the nominal rate of interest.

To find this value we must follow this equation:

$NI=RI+IR$

Where NI = Nominal Interest, RI= Real Interest, and IR= Inflation Rate.

a.1. Find the real interest rate.

The problem statement gives us this value: 2% real return per year, as agreed by Sarah and Frank.

a.2. Find the inflation rate.

Here we follow this equation:

$IR=(\frac{CPI_{F} -CPI_{B} }{CPI_{B} } )*100$

Where:

CPI(F) is the CPI of the final year, in this case, it would be 121 (the expected CPI for two years, which is the established loan time).

CPI (B) is the CPI of the base year, that is, the CPI in force at the time that Frank makes the loan, 100 in this case.

We replace these values:

$IR=(\frac{121-100}{100} )*100$

$IR=(\frac{21}{100} )*100$

$IR=0.21*100$

$IR=21%$

The inflation rate equals 21%.

a.3. Replace in the equation of the nominal rate of interest.

$NI=RI+IR$

$NI=0.02+0.21$

$NI=0.23$

So, the nominal rate of interest Frank should charge Sarah equals 23%.

b. Find out how much Frank should charge Sarah (regarding inflation and considering that it is unknown).

The inflation rate reduces the return expected by Frank. Therefore, the nominal interest rate charged must be higher than the inflation rate, in order to ensure a positive real returns. In this case, since it is not known exactly what that inflation rate is, Frank must charge 2% (expected return) above what the inflation rate can record.

Hence, the short answer is: Frank should charge Sarah 2% more than the inflation rate.

8 0

3 years ago

What is the relationship between financial system and economy

pentagon [3]

Answer:

Financial markets help to efficiently direct the flow of savings and investment in the economy in ways that facilitate the accumulation of capital and the production of goods and services.

3 0

2 years ago

Read 2 more answers

Up in Smoke Tobacco Shops' bond carries a 9 percent coupon, pays interest semiannually, and has 10 years to maturity. What is th

lara [203]

Answer:

10%

Explanation:

Since the bond is selling at a discount, it means that the coupon rate is blow the market rate, so the actual rate must be higher. Since there is only one option with an interest rate above 9%, we must check to see if it works.

10% yearly interest rate = 5% semiannual interest rate

we must determine the PV of the 20 coupons paid and the face value at maturity.

to calculate the PV of the 20 coupons ($45 each) we can use an excel spreadsheet and the NPV function with a 5% discount rate: PV of the coupons = $560.80

the PV of the face value in 10 years = $1,000 / 1.05²⁰ = $376.89

the present value of the coupons and the bond at maturity = $560.80 + $376.89 = $937.69. The PV using a 5% semiannual rate is very similar to $937.75, and since the question asked us to round up to the nearest whole percent, we can assume it is correct.

6 0

3 years ago

Four ways by which your choice of reading material can affect your writing

Liula [17]

What you read directly affects how you write. If you don’t have time to read, you won’t have the tools to write either. Readers understand how reading affects writing positively. Readers understand thoughts and learn how to structure those thoughts into a sentence. Readers also understand words and the connection they make with thoughts. Writing often comes naturally to avid readers because they understand the connection between thoughts and words.

How Reading Affects Writing
These are just some of the ways reading can help make you a better writer.
Structure
Readers are accustomed to structuring sentences. They have seen good sentence structure so many times that it starts to come naturally to them. A lot of this also depends on the quality of material you are reading. Readers are also used to seeing writers use different styles of writing. They learn to play around with different writing styles and use them according to the mood of the piece being written.

Grammar
Good grammar automatically makes sense to avid readers. They understand how different figures of speech fit together. They understand punctuation and how one comma or apostrophe can change the whole meaning of the sentence. Grammar can be improved through reading which then shows through in your writing too.
Understand the Thoughts of the Writer
Frequent readers are able to understand the thoughts of the writer. They are able to transport themselves and visualize what the author is saying through his words. Being able to understand thoughts is a great asset while writing. It helps you become the author you want to be.
Vocabulary and Creativity
Good readers have seen so much diverse content that they know how to make writing interesting. They understand the level of creativity required as a writer to be able to transport your audience to the scene you are describing. Such creative and powerful writing can only be made possible with the aid of great vocabulary.
Apart from reading with the goal of becoming a great writer, reading is also a great de-stressing agent. Unlike television where you actually see what’s going on, reading allows you to be your own director of the scene and allows your imagination to run wild.

7 0

3 years ago

An economic contraction caused by a shift in aggregate demand causes prices to a. rise in the short run, and rise even more in t

raketka [301]

Answer:

c. fall in the short run, and fall even more in the long run.

Explanation:

The aggregate demand shifts to the left in recession or contractions, in consequence the level of prices falls. For this analysis we consider the shor-run supply curve with a positive slop.

As we know, the economy in the long run tends to equilibrium, where the the production level is fixed and equal to the potential of production of the economy. The initial reduction of prices incentives the consumption in the long run, stabilizing with the long run quantites in a minor level of prices.

In the attached image you can observe the process described previously.

3 0

3 years ago

The money left over after all of the business costs are subtracted is called the __________.