Answer: $25,000
Explanation:
From the question, we are told that the borrowing rate rB=10% compounded annually and the lending rate (or equivalently, the interest rate on deposits) is only 8% compounded annually.
The upper bounds on the price of an perpetuity that pays $10,000 per year will be:
= $10,000/10%
= $10,000/0.1
= $100,000
The lower bounds on the price of an perpetuity that pays $10,000 per year will be:
= $10,000/8%
= $10,000/0.08
= $125,000
The difference between the upper and lower bounds will now be:
= $125,000 - $100,000
= $25,000
Answer:
b
Explanation:
The highest amount he would be willing to pay should equal the present value of the cash flows
Present value is the sum of discounted cash flows
Present value can be calculated using a financial calculator
Cash flow in year 1 = $1500
Cash flow in year 2 = 2100
Cash flow in year 3 = 3200
I = 10%
PV = 5503.38
To find the PV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
Answer:
Whereas the SRAS curve is upward sloping, the LRAS curve is vertical because, given sufficient time, all costs adjust.
Explanation:
Answer:
The answers are:
- Jerry must recognize $0 of gain on the transfer of the rental house
- Sally's tax basis is $80,000
Explanation:
Capital gains taxes are usually excluded when you sell a house or transfer the house in a divorce settlement. The exclusion is up to $250,000 of capital gains.
Since Sally didn't buy the house, but received it as part of their divorce settlement from Jerry, the same cost basis will apply to Sally.