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drek231 [11]
3 years ago
5

Mary expects the inflation rate to be 5%, and she is willing to pay a real interest rate of 3%. Joe expects the inflation rate t

o be 5%, and he is willing to lend money if he receives a real interest rate of 3%. If the actual inflation rate is 6% and the loan contract specifies a nominal interest rate of 8%, then:
a)Joe is glad he lent out funds even though his real interest rate has fallen.
b)Joe is sorry he lent out funds since his real interest rate is now 9%.
c)Mary is glad she borrowed the funds because her real interest rate has fallen.
d)Mary is sorry she borrowed funds since her real interest rate is now 9%.
Business
1 answer:
dezoksy [38]3 years ago
8 0

Answer:

c)Mary is glad she borrowed the funds because her real interest rate has fallen.

Explanation:

Real interest rate = nominal interest rate - inflation rate

=8% - 6% = 2%

Mary is willing to pay a real interest rate of 3% but she pays 2%. Her consumer surplus is 1%

Joe is willing to accept 3% but receives 2% in the end. Therefore, he doesn't earn a producer surplus.

I hope my answer helps you

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Major Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annu
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Answer:

a. $ 82, 063

b. - $ 19,206

c.  11.24%

Explanation:

Net Present Value is calculated by taking the Present Day (Discounted) value of all future Net Cash flows based on the company`s Cost of Capital and subtracting the Initial Cost of the Investment.

<em>Using a Financial Calculation</em>

a.

Cash flow Amount

Cf0 = ($665,000)

Cf1  = $130,000

Cf2 = $130,000

Cf3 = $130,000

Cf4 = $130,000

Cf5 = $130,000

Cf6 = $130,000

Cf7 = $130,000

Cf8 = $130,000

i = 8%

NPV = $ 82, 063

b.

Cash flow Amount

Cf0 = ($665,000)

Cf1  = $130,000

Cf2 = $130,000

Cf3 = $130,000

Cf4 = $130,000

Cf5 = $130,000

Cf6 = $130,000

Cf7 = $130,000

Cf8 = $130,000

i = 12%

NPV = - $ 19,206

c.

Internal Rate of Return = P  + ((N-P)×p/(p+n))

                                      = 8% + ((12%-8%)×$ 82, 063/($ 82, 063+ $ 19,206))

                                      = 11.24%

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postnew [5]

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