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Naddika [18.5K]
3 years ago
6

According to the theory underlying the present-value formula, would a rational individual prefer to receive (a) $75 one year fro

m now, (b) $85 two years from now, or (c) $90 three years from now, or would he be indifferent between all three choices?
Assume that the relevant annual market interest rate is 10 percent and will remain at 10 percent for the next three years.

a. He will prefer $75 one year from now.
b. He will prefer $85 two years from now.
c. He will prefer $90 three years from now.
d. He will be indifferent between all three choices.
Business
1 answer:
laila [671]3 years ago
6 0

Answer:

b. He will prefer $85 two years from now.

Explanation:

Before making the choice, lets first calculate the present values of these cash flows,

PV factors @ 10% are as follows,

Year 1 = 0.909

Year 2 = 0.8265

Year 3 = 0.7513

Present value of 75 = 75 * 0.909 = 68.175

Present value of 85 = 85 * 0.8265 = 70.25

Present value of 90 = 90 * 0.7513 = 67.617

A rational individual thus would chose $85 two years from now as it yields the max present value.

Hope that helps.

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The dilemma is to decide whether to ignore mother's orders or comply with them in this situation.

<h3>What is Opportunity Cost?</h3>

Opportunity Cost refers to the losses incurred on leaving the other possible alternatives in the decision making and choosing the one. It is the value of the best alternative choose in the process of the decision making.

In the Above situation,the individual would enjoy with friends if he goes to watch the movie However it can lead to trouble with his mother.

However, if individual does cleaning of the lawn; the price would be the fun you would have to forgo.

The best course of action would be to obey your mother because the consequences of doing otherwise are much worse.

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2 years ago
In this statement, which type of spending is President
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<u>Answer: </u>Option 2 discretionary

<u>Explanation:</u>

Spending can be mandatory spending or discretionary spending. Mandatory spending means the spending on essentials goods such as food. Discretionary spending means the spending on recreation and entertainment where people have additional money in hand after meeting their necessary expenses.

In this speech Obama speaks about the non essential expenses when they are controlled more investments can be made. He says when all the departments cut down their discretionary expenses then can result in economic growth.

7 0
3 years ago
Read 2 more answers
Gary’s Company produces high quality shirts. Shirts must be well made because of frequent washings. Currently, Gary sells 10,000
grin007 [14]

Answer:

Unless the capacity is expanded or some of the production gets outsource, the offer is not convenient.

Explanation:

Giving the following information:

Currently, Gary sells 10,000 shirts at $60 each with the capacity to produce 11,000 shirts. Gary is considering a special order for 1,800 shirts for $40.

Gary has the following costs:

Unit Costs $200,000

Facility Costs $140,000

If Gary accepts the special order, they will incur an additional $2 per shirt in foreign currency transaction costs.

Because it is a special offer and there is unused capacity, we will not have into account the fixed costs.

variable cost per unit= (200,000/10,000) + 2= $22

Effect on income= (40 - 22)*1,800= $32,400

We have to take into account the loss of not selling 1,000 units.

Effect on income= 1,000*40= $40,000

Total effect= 32,400 - 40,000= $7,600

Unless the capacity is expanded or some of the production gets outsource, the offer is not convenient.

6 0
3 years ago
In what areas is Leslie's underspending<br> hurting her budget?
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Leslie's budget is hurting in the areas of transportation, groceries, phone and dining out.                                                                                                                                                    

<u>Explanation:</u>

For transportation, cash is required for every day. So Leslie is spending more on transportation every month. Forgoing back and forth out anyplace she will burn through cash on transportation.  

She is likewise spending cash on goods. Staple goods will be an essential one for living these days. So the financial backing is harming here.  

She is spending another hand on the telephone and eating out. For the telephone, she will energize each month. She will feast out with companions each day.

5 0
3 years ago
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Suppose a U.S. Treasury bond will pay $2,500 five years from now. If the prevailing interest rate on 5-year Treasury bonds is 4.
Morgarella [4.7K]

Answer:

The value of the bond today is closest to $1648.85

Explanation:

The value of the bond today is closest to:

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FV= 2500

I = 4.25 = 0.0425

N= 5

M= 2

The value of the bond today = 2500 / (1+0.0425) ^5*2

The value of the bond today = 2500 / 1.516214468

The value of the bond today = 1648.853256

The value of the bond today = $1648.85

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